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{{#Wiki_filter:UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al., DOCKET NO.STN 50-528 (Palo Verde Nuclear Generating Station, Unit 1)APPLICATION IN RESPECT OF A SALE AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO October 18, 1985 85i02iai36 | {{#Wiki_filter:UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al., DOCKET NO. STN 50-528 (Palo Verde Nuclear Generating Station, Unit 1) | ||
.0 0' TABLE OF CONTENTS 2 0 | APPLICATION IN RESPECT OF A SALE AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO October 18, 1985 85i02iai36 ADDCH, 8 | ||
....4 4~Conditions Precedent to the Financing Transaction | 0> | ||
.........6.5.Schedule of the Financing Transaction | PDR P | ||
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......... | .0 0' | ||
......10 No Significant Hazards Consideration | |||
.. | TABLE OF CONTENTS Pacae Relief Requested 1 2 0 Purpose of the Financing Transaction ~ ~ 3 3 ~ Description of the Proposed Sale and Leaseback Financing Transaction . . . . 4 4 ~ Conditions Precedent to the Financing Transaction . . . . . . . . . 6. | ||
: 5. Schedule of the Financing Transaction 6. | |||
7. | |||
Supporting Information ......... | |||
Environmental Considerations ......10 | |||
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: 8. No Significant Hazards Consideration ..10 9. | |||
PVNGS Unit 1 ~ ~ .. ~... ~....11 Responsibility for Management of | |||
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TABLE OP CONTENTS, Continued EXHIBITS Exhibit Desi nation Descri tion General Information Concerning Public Service Company of New Mexico Attachment A: 1984 Annual Report of Public Service Company of New Mexico and Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1984 B'eneral Information Concerning First National Bank of Boston Th' Attachment A: Affidavit of U. S. Ci tizenship of The First National Bank of Boston Attachment B: Affidavit of U.S. Citizenship of Bank of Boston Corporation Attachment C: 1984 Annual Report of Bank of Boston Corporation. | |||
Final Report of the S.M. Stoller Corporation dated August 3, 1982, entitled "Estimated Cost for Decommissioning Palo Verde Nuclear Generating Station (PVNGS)" | |||
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UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE DOCKET NO. STN 50-528 COMPANY, et al., | |||
(Palo Verde Nuclear Generating Station, Unit 1) | |||
APPLICATION IH RESPECT OF A SALE AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO Pursuant to Section 103 of the Atomic Energy Act of 1954, as amended, and 10 CFR 50.22 and 50 .54(c)< Arizona Public Service Company (APS), as Project Manager and Operating Agent of Palo Verde Nuclear Generating Station (PVNGS) Units 1, 2 and 3, submits this application, under 10 CFR 2.206, on behalf of Public Service Company of New Mexico (PNM), licensee under Facility Operating License No. | |||
NPF-41, and The First National Bank of Boston, as Owner Trustee under two or more separate grantor trust agreements (hereinafter Owner Trustee) . Accompanying this Application is a Memorandum in Support thereof (the Mexaorandum). | |||
: 1. Relief Requested PNM proposes to refinance its construction financing for PVNGS Unit 1 by entering into two or more sale and leaseback financing transactions relating to all or a portion of PNM's 10.2% | |||
~ undivided ownership interest in Unit 1 and all or a proportionate | |||
s hare of one-third of PNM's 10.2% undivided ownership interest in PVNGS common facilities (said interest in Unit 1 and in the common facilities being hereinafter collectively referred to as the Facilities) .1 The relief requested by this Application is the issu-, | |||
ance of an order (i) authorizing the transfers of the Facilities through the sale and leaseback financing transactions, pursuant to Sections 50 .22 and 50.54(c) of the Commission's regulations (10 CFR 50 .22 and 50 .54(c)), subject to the conditions that: | |||
(a) The rights acquired by the Owner Trustee and any equity investor and any successors and assigns (including any mortgagee or secured party of such Owner Trustee) in and to PVNGS Unit 1 may be exercised only in compliance with and subject to the same requirements and restrictions as would apply to PNM pursuant to the provisions of Facility Operating License No. NPF-41 (the License), the Atomic Energy Act of 1954, as amended (the Act), and the regulations issued by the Commission pursuant to the Act; and (b) Neither the Owner Trustee nor any equity investor nor any of their respective successors or assigns may take possession of any interest in PVNGS Unit 1 prior to either (1) the issuance of a license from the Commission authorizing such possession or (2) the transfer of the License authorizing PNM to possess an interest in PVNGS Unit 1 upon an applica-tion for transfer of such License filed pursuant to 10 CFR 50.80 (b); | |||
: 1. PNM will retain, however, ownership of easements, rights-of-way and certain other real property rights associated with the Facilities, including property referred to under the Internal Revenue Code as "Section 1250 property" (such as the Administration Building). PNM will also retain ownership of the nuclear fuel and electric transmission facilities associated with PVNGS. | |||
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and,(ii) acknowledging that neither the Owner Trustee nor any equity investor nor any of their respective successors and assigns is or shall become a licensee under the License unless and until the Commission shall have issued an amendment of the License authorizing such Owner Trustee, equity investor, successor or assign to take pos-session of an interest in PVNGS Unit l or shall have approved a transfer of PNM's license to such Owner Trustee, equity investor, successor or assign. | |||
: 2. Purpose of the Financing Transaction The proposed sale and leaseback financing transactions will provide benefits to PNM's customers through two channels. First, the net present value of capital costs (and the total nominal costs) will | |||
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be reduced by the transfer of tax benefits and by the recapitaliza-tion of the plant financing with greater debt leverage. Second, the revenue requirements associated with PNM's capital costs in PVNG's Unit l will be levelized over the life of the Unit. | |||
Because the lessors in the proposed sale and leaseback transactions will recapitalize the Unit with greater debt leverage, the required lease payments represent a lower cost of capital than would PNM's composite cost of capital. Also, PNM's tax situation is such that it cannot take full advantage of tax benef its at the present time. The sale will transfer the benefits of tax depreciation to such lessors. | |||
The leveling of revenue requirements over time yields several benef its. Under conventional utility regulation, carrying charges are determined by the asset's net book value which declines over time as the asset is depreciated. This produces so-called "front-end" loading the familiar situation in which the stream of revenue requirements falls over time while the actual value of the plant output rises over time. Front-end loading is eliminated with the proposed sale and leaseback transaction because a fixed lease payment replaces the conventional "high front-end" revenue require-ments stream, thus benefitting PNM's ratepayers and insulating them from potential "rate shock". | |||
3 . Description of the Proposed Sale and Leaseback Financing Transaction PNM proposes to sell to grantor trusts, the beneficiaries of which will be institutional equity investors, the Facilities, including without limitation PNM's 10.2% Generation Entitlement Share> in PVNGS Unit 1. Such investors will enter into one or more trust agreements with the Owner Trustee who will take and hold title to the Facilities sold by PNM. The Owner Trustee will in turn lease the Facilities back to PNM for a term of approximately 28-1/2 years | |||
: 2. "Generation Entitlement Share" is defined in Section 3.28 of the Arizona Nuclear Power Project Participation Agreement as amended (see Appendix D attached to the Memorandum) as: "The percentage entitle-ment of each Participant to the Net Energy Generation and to the Available Generating Capability..." | |||
0 for a stipulated basic rent. (See Section 4 of the Memorandum for a more complete description of certain significant terms of the leases-I Under the ANPP Participation Agreement [see Appendices D and E to the Memorandum) which governs the ownership and operation of Unit =1, PNM will be empowered with respect to the Facilities to be and act as the "Participant" with full power and authority, to the exclusion of the Owner Trustee and/or the equity investors, to exer-cise all the rights and perform all the duties and responsibilities under such Agreement. The leases will confirm this authorization to PNM. The Owner Trustee, as lessor under the leases, will be subject only to typical f inancing risks and not to operational risks or responsibilities. | |||
Sale and leaseback financing is a recognized and accepted mechanism that has been used for many years by a number of commercial institutions involving a wide variety of property types. APS and a number of other electric utilities have used this mechanism to finance or refinance their investments in non-nucl'ear generating facilities. In the past year PNM refinanced its investment in one of its transmission lines, known as the Eastern Interconnection Project (EIP), using sale and leaseback documentation similar to that pro-posed for refinancing its interest in PVNGS Unit 1. When used by electric utilities, sale and leaseback transactions have been subjected to review and approval of state and/or federal regulatory | |||
agencies. [See, for example, Appendices A and B attached to the Memorandum.l While this will be the first occasion of the use,of a sale and leaseback transaction in financing a nuclear power facility, the secured financing of the nuclear fuel used in such facilities utiliz-ing a lease format is not unique. | |||
: 4. Conditions Precedent to the Financing Transaction The proposed financing transaction is subject to the fol-lowing conditions precedent, in addition to others commonly associ-ated with any financial transaction of this nature: | |||
4.1 The approval of the transaction by the New Mexico Public Service Commission as required by the laws of the State of New Mexico, such approval to be in form and substance satisfactory to all parties to such transaction. | |||
4.2 The issuance of a declaratory order by the Federal Energy Regulatory Commissi'on (PERC), satisfactory in form and sub-stance to all parties to the transaction, ruling that the equity investors and the Owner Trustee will not, as a result of their hold-ing title to the Leased Interests, become "public utilities" as def ined in section 203 (a) of the Federal Power Act. | |||
4.3 The actions of the Commission as applied for in this Application. | |||
4.4 Ownership and operation of PVNGS Unit 1, together with Units 2 and 3, is governed by the Arizona Nuclear Power Project | |||
Participation Agreement, as amended. [See Appendices D and E attached to the Memorandum.l The ANPP Administrative Committee cre-ated by such Agreement will be required to make a determination that the conditions to the proposed sale and leaseback transaction speci-fied in proposed Amendment No. 10 to such Participation Agreement have been met. | |||
: 5. Schedule of the Financing Transaction 5.1 The viability of the proposed financing transaction hinges upon its consummation on or before December 31, 1985. To meet this date it is planned that preliminary conditional commitments will be obtained from the equity investors and the Owner Trustee on or about October 22, 1985. Thereafter, it is expected that on or about November 15, 1985, approval of the proposed sale and leaseback from the New Mexico Public Service Commission and the requisite order from FERC will be obtained. Finally, it is very desirable that the clos-ing of the sale and leaseback transactions take place on or about December 18, 1985. This is necessary to provide the equity investors with the 1985 available tax benefits without which the proposed transactions will fail to close. A December 18 closing will ensure that the associated public debt offering can be sold in the'ublic market prior to the Christmas holidays. | |||
5 .2 To achieve this schedule it will be necessary that the Commission issue its final order not later than November 20< 1985, authorizing the transfers of the Facilities by PNM to the Owner | |||
Trustee and by the Owner Trustee back to PNM. (See Section 1 hereof . l | |||
: 6. Supporting Information 6.1 The general information respecting applicant PNM required by 10 CFR 50.33 (a) through (d) is provided by Exhibit A attached to this Application. | |||
6.2 The general information respecting applicant Owner Trustee required by 10 CFR 50.33 (a) through (d) is provided, as appropriate, by Exhibit B attached to this Application. | |||
6 .3 The total estimated annual operating costs (operation and maintenance expense, including fuel expense) for each of the first five years of operation of PVNGS Unit 1 and PNM's share of such costs are tabulated below: | |||
Total Estimated PNM's Share of Year Operating Costs Operating Costs (in thousands) | |||
$ 122 i851 12,580 1986 1987 1988 ill i729 104 i 514 | |||
$ | |||
lli566 10,888 1989 128 i 490 13,405 1990 133 i652 13,976 6 .4 The estimates set forth in Section 6.3 above are based on the following assumptions: (a) with respect to operation and maintenance expense (excluding fuel expense and using ANPP Forecast No. 18), (i) the inclusion in common costs of common facilities and | |||
water reclamation facilities, (ii) inclusion of only Unit 1's share of common costs with even allocation across all units (using APS's date of firm power operation for Unit 2), (iii) loads have been included (payroll, with the exception of taxes, materials and service and outside services), and insurance and administrative and general expense have been excluded, (iv) the projection of all dollars at year's cost (escalation at 6% per year), and (v). the exclusion of PNM legal fees, replacement power insurance costs and other PNM in-house costs; and (b) with respect to fuel expense (using the June 1985 nuclear fuel financial forcast), (i) the subtracting out of Western Nuclear's cash flow for 1985, (ii) the assignment to Unit 1 of one third of each of U308 cash flows and conversion cash flows, (iii) the use of the ratio of the current SWU price projection to the old SWU price projection times Unit 1 enrichment cash flows to calculate enrichment, (iv) no change in either fabrication or spent fuel dis-posal fees and (v) recalculation of use tax assuming 5% of U308 costs instead of 5% of total fuel assembly costs. | |||
6.5 As Exhibit C attached to this Application indicates, the cost of decommissioning PVNGS Unit 1 using the DECON alternative (as described in the notice of proposed rulemaking published in the Federal Register on February 11, 1985, at pages 23025 ~et e .) is | |||
$ 79 million (expressed in 1982 dollars). PNM is now and, pursuant to the proposed leases, will continue to be obligated to pay 10.2% of the costs of decommissioning PVNGS Unit 1. | |||
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: 7. Environmental Considerations The proposed conveyances of the Facilities to the Owner Trustee and the leasebacks of the Facilities to PNM by the Owner Trustee do not involve any design or physical change to PVNGS Unit 1, any change in the transmission or other facilities associated with PVNGS Unit 1, any change in types or amounts of effluents from PVNGS Unit 1, any change in the potential for accidental releases from PVNGS Unit 1 or any change in the authorized power level of PVNGS Unit l. Accordingly, the grant of the relief requested by this Application does not present an unreviewed environmental impact. | |||
Pursuant to 10 CFR 51 .5(d)(4), no environmental impact statement, negative declaration, or environmental impact appraisal need be pre- | |||
: 8. No Significant Hazards Consideration The consummation of the proposed sale and leaseback financ-ing transactions will not involve any increase in the probability or consequences of an accident previously evaluated, or create the pos-sibility of a new or different kind of accident from any accident previously evaluated, or involve any reduction in a margin of safety. Accordingly, the consummation of the transfers of the Facilities as contemplated by the proposed sale and leaseback financ-ing transactions does not involve a "significant hazards consideration" within the meaning of that phrase as defined in 10 CFR 50.92. | |||
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: 9. Responsibility for Management of PVNGS Unit 1 9.1 The consummation of the proposed sale and leaseback financing transactions will not result in any change in the responsi-bilities, obligations or authorities of APS as licensee under the License authorized to operate and maintain PVNGS Unit 1, nor as Operating Agent under the ANPP Participation Agreement. | |||
9.2 Under the terms of the proposed leases and pursuant to the proposed amendment of the ANPP Participation Agreement, PNM shall continue throughout the term of the leases to be a Participant under the ANPP Participation Agreement, entitled to a 10.2% Generation Entitlement Share of the power and energy generated by PVNGS Unit 1, entitled to a full vote on all Unit 1 business and obligated to pay 10 .2% of the costs of operating, maintaining and decomissioning such Unit. | |||
0 9.3 It is not necessary to issue a license to the Owner Trustee and/or equity investors since only APS, as Operating Agent, and the other Unit 1 licensees, including PNM, are able to insure that Unit 1's operation is consistent with the Commission's licensing responsibilities. APS and the other Unit 1 licensees alone have con-trol of and responsibility for the Operating Agent with respect to the operation and maintenance of Unit l. The ownership rights of the Owner Trustee and/or the equity investors are far too limited in this regard to require a license, as the Memorandum makes abundantly clear. The Owner Trustee and/or the equity investors will have (i) no ability to restrict or inhibit compl'iance with the security, | |||
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safety or other regulations of the Commission, (ii) no capacity to control the use of Unit 1 nuclear fuel or to dispose of special nuclear material generated by Unit 1, and (iii) no right to use or direct the use of the Facilities. Although legal title to the Facilities will reside with the Owner Trustee, the current regime of control, supervision and responsibility is unaltered by the proposed transaction. APS is and will remain responsible to the Commission for the proper operation and maintenance of Unit l. | |||
~ I WHEREFORE, APS requests on behalf of PNN and the Owner Trustee that the Commission grant the relief requested in Sectioq 1 hereof or in such other form and/or subject to conditions in addition to those stated in such Section as the Commission may deem appropriate. | |||
Respectf ully submitted, ARIZONA PUBLIC SERVICE COMPANY Edwin E. Van Brunt, Jr. | |||
Executive Vice President-ANPP Dated s October= 18 < 1985 | |||
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STATE OF ARIZONA ) | |||
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COUNTY OF MARICOPA) | |||
I, Donald B. Karner, represent that I am Assistant Vice President, Nuclear Production of Arizona Nuclear Power Project, that the foregoing document has been signed. by me on behalf of Arizona Public Service Company with full authority to do so, that I have read such document and know its contents, and that to the best of my knowledge and belief, the statements made therein are true. | |||
Donald B. Karner Sworn to before me this /7 day of 0 ~7 , 1985. | |||
",. )/" Notary Public | |||
'y Commi'ssion Expires: | |||
Ny CommIsslon Expires Jan. 23, 498T | |||
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UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al, DOCKET NO STN 50-528 (Palo Verde Nuclear Generating Station, Unit l) | |||
EXHIBIT A TO APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO GENERAL INFORMATION CONCERNING PUBLIC SERVICE COMPANY OF NEW. MEXICO | |||
O. | |||
0, General Information Concerning Public Service Company of New Mexico | |||
~ (a) Name of applicant: | |||
Public Service Company of New Mexico ("PNM") | |||
(b) Address of applicant: | |||
Alvarado Square Albuquerque, New Mexico 87158 (c) Description of business of applicant: | |||
PNM is a public utility engaged principally in the generation, transmission, distribution and sale of electricity and, since January 28, 1985, in the gathering, transmission, distribution and sale of natural gas within the State of New Mexico. PNM also owns facilities for the pumping, storage, transmission, distribution and sale of water. In addition, PNM, through its subsidiaries, is engaged in a program of. diversification into non-utility areas. | |||
(d) (1) Not applicable. | |||
(d) "(2) Not. applicable. | |||
~ (d) (3) (i) State of incorporation and principal location: | |||
PNN is an investor-owned corporation organized and existing under and by virtue of the laws of the State of New Mexico. | |||
Its principal offices are .in Albuquerque, New Mexico. PNM pro-vides electric service to (1) a large area of north central New Mexico, including the cities of Albuquerque, Belen, Bernalillo, Santa Fe and Las Vegas, (2) Deming in southwestern New Mexico and (3) Clayton in northeastern New Mexico. PNM also provides wholesale electric service to the the City of Gallup, the City of Farmington, Plains Electric Generation & Transmission Cooperative, Inc., and Texas-New Mexico Power Company. | |||
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(d) (3) (ii) Names of directors and principal of ficers: | |||
Directors of Public Service Company of New Mexico | |||
. J.P., Bundrant President, Electric Operations Public Service Company of New Mexico | |||
;J | |||
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A.B. Collins, Jr. | |||
President Reddy Communications, Inc. | |||
Albuquerque, NM J.D. Geist Chairman and President Public Service Company of New Mexico C.E. Leyendecker Chairman of the 'Board and Chief Executive Officer United New Mexico Bank at Mimbres Valley Deming< NM A.G. Ortega Attorney at Law Ortega & Snead, P.A. | |||
Alburquerque, NM R.R. Rehder Professor of Management Robert 0. Anderson Graduate School of Management University of New Mexico Albuquerque, NM R.B'., Rountree Senior Vice President Public Service Company of New Mexico R.H. Stephens President Stephens-Irish Agency, Inc. | |||
Las Vegas, NM E. R Mood Vice President and General Manager Wood 5; Hill Corporation Santa Fe, NM H.L. Galles, Jr. | |||
Director Emeritus Chairman of the Board Galles Chevrolet Company Albuquerque, NM Principal Officers of Public Service Company of New Mexico PNM CORPORATE A-2 | |||
J-D. Geist Chairman and President J. B. Mulcock, Jr. | |||
Senior Vice President< | |||
Corporate Affairs and Secretary A-J- Robison Senior Vice President and Chief Financial Officer R.B. Rountree Senior Vice President M.A. Clifton Vice President, Financial Planning B.D. Lackey Vice. President and Corporate Controller J.K. Murphy Vice President, Regulatory and Business Policy W.C'. Mygant Vice- President, Corporate Services P.J.. Archibeck Treasurer and Assistant Secretary H.L. Hitchins, Jr. | |||
Assistant Secretary and Assistant Treasurer M.J. Marzec Assistant Treasurer M'. Mason-Plunkett Assistant Secretary PNM ELECTRIC J.P. Bundrant President and Chief Operating Officer A-3 | |||
C.D. Bedford Senior Vice President, Planning, Finance and Administration W.M. Eglinton Senior Vice President, Operations J.L. Wilkins Senior Vice President, Power Supply J.L. Godwin Vice President, Power Production and Manager, San Juan Station W.M. Hicks, Jr. | |||
Vice, President, Energy Management R.A. Lake Vice President, Operations Services M.A. McDonald Vice President, Human Resources and Support Service R.P. Mershon Vice President,, | |||
Regional Division Operations D.J. Morse Vice President, Albuquerque Division Operations R.M. Wilson Controller, Electric Operations and Assistant Secretary GAS COMPANY OP NEW MEXICO J.T. Ackerman President and Chief Operating Officer Gas Operations A-4 | |||
po O.L. Slaughter Senior Vice President and Executive Assistant J J Ruiz District Vice President W.J. Real District Vice President T.D. Rister District Vice President D.L. Pickel District Vice President T.A. Coers District Vice President, Transmission G.D. Mische, District Vice President, Transmission M.H. Lambert Vice President, Pipel ine Operations J.C. Wyman Vice President, Gas Supply | |||
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D.W.'. McPearin Vice President, Controller and Assistant Secretary D.J. Davis Vice President and Chief Engineer, Distribution E.R. Corliss | |||
'Vice President and Chief Engineer, Transmission T.H. Morse Vice President Distribution Operations Each of the directors and principal officers zen of the United States of America. | |||
of PNM is a citi-(d) (3) (iii) Public Service Company of New Mexico is not owned, controlled, or dominated by an alien, a foreign corporation, or a foreign government. | |||
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(d) (4) Public Service Company of New Mexico is not acting as agent or representative of another person in respect of this application. | |||
(e) See the Application to which this document is attached as Exhibit A. | |||
(f) In accordance with 10 CFR 50, Appendix C, a copy of Public Service Company of New Mexico's 1984 Annual Report and its Annual Report on Form 10-K f or the f iscal year ended December 31, 1984, are attached hereto .as Attachment A. | |||
(g) Not applicable. | |||
(h) Not applicable. | |||
(i) The names and addresses of regulatory agencies which have juris-diction over Public Service Company of New Mexico's rates and services are: | |||
New Mexico Public Service Commission Marian Hall 224 East Palace Avenue Santa Fe, New Mexico 87503 Federal Energy Regulatory Commission Washington, D.C. 20426 News publications which circulate in the area in which the facility is located are: | |||
The Arizona Republic 120 East Van Buren Phoenix, Arizona 85004 The Phoenix Gazette 120 East Van Buren Phoenix, Arizona 85004 Buckeye Valley News P.O. Box 217 Buckeye,- Arizona 85326 News publications which circulate in Public Service Company of New Mexico's service area include the following: | |||
Las Vegas Daily Optic Las Vegas, New Mexico 87701 The New Mexican, Inc. | |||
Post Office Box 2048 Santa Fe, New Mexico 87501 A-6 | |||
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Los Alamos Monitor Post Office Box 899 Los Alamos, New Mexico 87544 Albuquerque Journal Albuquerque Publishing Company Post Office Drawer J-T Albuquerque, New Mexico 87103 Gallup Daily Independent Post Office Box 1210 Gallup, New Mexico 87301 (j) Not applicable. | |||
A-7 | |||
0, UNITED STATES OF AMERICA NUCLEAR REGULATORY COHMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al, DOCKET NO STN 50-528 Verde Nuclear | |||
'Palo Generating Station, Unit 1) | |||
ATTACHMENT A TO EXHIBIT A TO APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO 1984 ANNUAL REPORT OF PUBLIC SERVICE COMPANY OF NEW MEXICO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1984 | |||
~ "A fine wind is blowing the new direction of time" D H Lawrence PNM ANNUAL REPORT 1984 | |||
The | Changing, Yet Unchanged The Southwest is a land of sharp contrasts-modern cities rising from timeless deserts, multistory granite and glass office buildings standing within sight of adobe Indian villages. | ||
Laura Gilpin's "Storm From La Bajada Hill, New Mexico," on the cover of this year's annual report, reveals a dramatic landscape. Since the Gilpin ~ i photograph was taken in 1946, a modern interstate has been built across La Bajada's weather-beaten, high mountain desert. Wise travelers have a healthy respect for the storms that often rack the otherwise serene hill. | |||
As you turn the pages of the report you'l see other vintage photographs that convey the ageless quality of New Mexico. They are accompanied by quotes from well-known authors and others whose work has been deeply 0', | |||
influenced by experiences in the Southwest. | |||
PNM has also been influenced by the natural beauty and the rich cultural heritage of New Mexico and the Southwest. As we'e grown, as we'e changed to meet the challenges and take advantage of the opportunities of the 1980s, we'e retained our close affinity for the land and for the people we serve. | |||
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i "STORM FROM LA BAJADA HILL, NEW MEXICO," Laura Gilptn 1946 1985 Amon Carter 1 | |||
Table of Contents Chairman's Letter Corporate Overview Electric and Water UtilityActivities Broadening Our Base 15 Financial Data and Consolidated Financial Statements 19 Stockholder Information 37. | |||
4.2 | Directors and Officers 38 Regional Electric System Map 40 Features Gas Company of New Mexico Eastern Interconnection Project Montana de Fibra 17 Financial Highlights 1984 1983 X Change Operating revenues S 445,328,000 S 397,474,000 12.0 0 ting expenses S 298,834,000 S 261,227,000 14.4 | ||
~ ing income S 146,494,000 S 136,247,000 7.5 rnings S 132,840,000 S 140,519,000 (5.5) | |||
Net earnings applicable to common stock S 108,850,000 S 116,332,000 (6.4) | |||
Return on average common equity 12.5M 14.3X (12.6) | |||
Average number of common shares outstanding 35,011,000 32,956,000 6.2 Earnings per common share S 3.11 S 3.53 (11.9) | |||
~ Dividends paid per common share S 2.85 S 2.81 1.4 Book value per common share at year-end S 25.28 S 25.20 0.3 Utility construction expenditures S 278,205,000 S 261,964,000 6.2 | |||
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Gross investment in utility property S2,405,961,000 S2,139329,000 Kilowatt-hour sales 6,317,338,000 6,105,201,000 3.5 Number of electric customers served at year-end 243,864 233,256 4.5 Average kWhr usage per residential customer 6,022 5,915 1.8 System peak demand (MW) 976 998 (2.2) | |||
Number of PNM employees 2,822 2,845 (0.8) | |||
Number of common shareholders 66,855 70,210 (4.8) | |||
Chairman's Letter The midpoint of this decade is pivotal gas customers to its service community for the Public Service Company of and should realize approximately 8400 New Mexico. million in new revenues during 1985. | |||
For years we have been building, Late in the year, the Palo Verde endowing New Mexico and the South- Nuclear Generating Station, in which ~4p~% | |||
west with the energy resources needed PNM holds a 10.2 percent interest, to carry vigorous economic growth received an operating license from the well into the next century. That long- Nuclear Regulatory Commission for term construction strategy is now Unit I of the project. Fuel loading in approaching completion, and we have Unit I was completed on January 1 I, begun to focus on new services, fresh 1985 and low power operation of the approaches to marketing and invest- unit is underway. The license allows ments that help spur the growth of our for possible full power operation later state and region. in 1985. | |||
Such a period of transition demands In December, the New Mexico Public innovation along with cautious Service Commission approved a new management of the Company's re- ratemakmg methodology called Inven-sources. Change is inevitable, a positive tory of Capacity. This important response to needs and opportunities. ratemaking concept successfully deals Yet a critical management function is with the problem of uncommitted to recognize what should not change- capacity while protecting the interests 1970s, which radically altered the way the values, policies and traditions that of shareholders and shielding our we and all Americans viewed energy. | |||
give a corporation its character and customers from the impact of sudden We recognized at the time our | |||
durability the stable business base rate increases. responsibility to ensure that the ~ | |||
that makes it possible to innovate Other 1984 highlights: the under nomic potential of New Mexico . | |||
without undue risk to shareholders or budget and ahead of schedule com- the Southwest must never be chec ed customers. pletion of our Eastern Interconnection by insufficient supplies of energy. We With this in mind, I think it appro- Project, a 216-mile transmission line saw clearly that our sources of fuel priate to report this year not only on which links us to eastern markets must be cost efficient, dependable the changes underway, but also on and allows immediate bulk power sales and independent of external manipu- ~ | |||
those qualities of PNM which we to Southwestern Public Service Com- lation. As a result, PNM launched an recognize as changeless. | |||
pany; completion also under budget intensive construction program to | |||
and ahead of schedule of Montana provide a balanced coal and nuclear A Year of Opportunity de Fibra, a $ 67 million medium density power base. | |||
For PNM, this has been an exciting fiberboard facility in which our sub- Construction activity is now de-year. We entered 1984 faced with sidiary, Meadows Resources, Inc., holds creasing. The San Juan Generating enormous challenges. The events of a primary interest; and finally, the Station, particularly San Juan Unit 4, the past twelve months have proven implementation of a major rate relief which came on-line in 1982, is that those challenges were, in fact, package granted by the Commission to recognized as one of the most reliable opportunities. our electric utility. and efficient coal-fired generating The year brought settlement of a Much of this good news is the units in the nation. At Palo Verde landmark antitrust lawsuit in which outgrowth of years of strategic planning and careful management. | |||
Nuclear Generating Station, Unit I 4 PNM was an active plaintiff. The should be generating at full power settlement led to PNM's acquisition, later in 1985. Palo Verde Units 2 and 3 early in 1985, of the Gas Company of Marshaling of Resources are on schedule and should be in New Mexico and other New Mexico Our long-term commitment to utility operation by 1987. The ample and utility assets of the Dallas-based construction began more than a decade dependable energy supplies provided Southern Union Company. With the ago, triggered in part by two by these facilities represent a major ~ | |||
acquisition, PNM has added 303,000 phenomena. The first was the extra- resource for development in New Mex-ordinary growth rate of the 1960s, at ico and throughout the Southwe times approaching 10 percent annually. powerful attraction for new indi The second was the oil crisis of the and businesses. | |||
allowing capital costs to earn a fair are solid principles of Company practice return and to be recovered in the that do not change. | |||
future. Among those principles is our com-mitment to strong leadership. The Broadening Our Base recent appointment of John Bundrant hange is PNM is now a diversiTied business. as President and Chief Operating inevitable, family, organized to accomplish two Officer of our Electric Operations and a positive complementary tasks. Our electric and John Ackerman as President and Chief response to needs and gas utility divisions serve as New -Operating Officer of our Gas Operations Mexico's primary energy resources. reaffirms that commitment. These new opportunities. fet a critical Our investment group, headed by appointments clearly separate our function is | |||
~ management to recognize what should Meadows Resources, Inc., enhances corporate profitabflity while it spreads electric utility from our gas operations and assure a strengthening of active not change gg our investment risk and creates eco- competition between the two utilities. | |||
nomic opportunities in New Mexico We seek only the best employees. | |||
and the Southwest. The early completion of major projects Our investment subsidiary, Meadows, such as Eastern Interconnection accounted for 14 percent of our net Project and Montana de Fibra at less earnings applicable to common stock than projected cost is a testament to for the year. Meadows has developed a their skill and dedication. | |||
Marketing: The Future Challenge broad base of interests with invest- A tough but fair regulatory atmos-Added capacity brings with it a ments in forest products, minerals, phere has yielded rate relief $ 38.5 s 'th necessity for new emphasis on market-the Eastern Interconnection complete, PNM is now linked land and new technologies. | |||
is expected to produce as much as 88 million in relief became available last Montana de Fibra, completed in 1984, July with another $7.5 million made available on February 1, 1985 and power systems to the east. We are million square feet of medium density made possible ratemaking innovations also seeking markets to the north and fiberboard annually. It has also gen- such as Inventory of Capacity. | |||
in California. The early results of these erated 200 new jobs in an economically Finally, we are firmly committed to | |||
. our customers, our state and our region. | |||
efforts are notable. The Company has depressed area of New Mexico. | |||
in-hand contracts to sell nearly three- Meadows is tapping into South- Our enduring goals are to help preserve | |||
~ western real estate markets through an irreplaceable way of life and to quarters of our capacity in excess of that demanded by our New Mexico its active partnership with Bellamah enhance it through new opportunities. | |||
customers from 1985 through 1987. Associates, Ltd., a New Mexico-based Our shareholders, employees and An important element of our mar- land development firm. The success of customers recognize the importance keting program is the recognition that, real estate activities has far exceeded of these goals and commitments. The by promoting the success of our cus- our expectations, with total sales during PNM management and directors thank | |||
~ 1984 amounting to $ 83.0 million. them all for their confidence and tomers, we ensure our own success. | |||
We are listening more closely than The Meadows venture capital port- support. | |||
ever to what our customers are telling folio includes investments in gas lasers us about their energy needs. and other exciting technologies. Only Our marketing program is gaining about 4 percent of Meadows'ssets are dedicated to venture investments, y momentum, but to protect our share-holders and customers against the but we expect good returns. | |||
possible negative impact of uncom- J. D. Geist Changing, Yet Unchanged mitted capacity, we have embraced Chairman and President Inventory of Capacity. Inventorying These key events and accomplish-protects customers from "stairstep" ments of 1984 and early 1985 represent major milestones in the Company's g rate increases by holding uncommitted capacity out of the rate base until it is strategic plan for the 1980s and beyond. | |||
: d. At the same time, this new But underlying the developments that ing concept recognizes the I have briefly described, which have ate interests of shareholders by accelerated the evolution of PNM, there | |||
"The wind lay upon me. The monoliths were there in the long light, standing cleanly apart from time." | |||
N, Scott Momaday O. | |||
C') | |||
y, Wr; . | |||
4 < | |||
'X' 'I | |||
) C l | |||
I 4:..-. t~>~r | |||
~ ' | |||
PM | |||
.;~ '",$k,. p~ | |||
~ J~ | |||
"NAVAJOCHURCH NEAR FORT WINGATE (New Mexico)," John K. Hillere, Circe 1880. Albumen Print 0 | |||
Corporate Overview after eliminating a nonrecurring gain PNM, the Commission staff and other of $ 24.1 million, in 1983, on the sale of parties that established a ratemaking the equity interest in a trust which methodology called "Inventory of Ca-held certain coal leases. pacity." This methodology places new Earnings per share of common stock generating facilities into the rate base were $ 3.11 in 1984. The average number gradually. Inventorying protects share-of shares outstanding was 35.0 million, holder investment in new generating up 6.2 percent from the 33.0 million plant, while shielding customers from shares outstanding in 1983. Return on the sudden rate impacts that would average common equity was 12.5 otherwise occur if a new plant were percent. put into the rate base all at once. | |||
~ | Paced with the challenge of placing Regulatory Environment new, capital intensive plant on-line During 1984, PNM was successful wle minimizing the impact on custo-in negotiating settlements of several mers, the Company and the Commission important cases before the New Mexico began, in 1982, to study this new Public Service Commission (Commis- ratemaking concept, which places sion). PNM believes that vigorous certain portions of uncommitted plant negotiation in good faith better serves capacity into "inventory." In 1983 the all interests the shareholder's, the Commission established a task force customer's and the public's than does representing the Commission staff, In the decades ahead, the Public PNM, the Attorney General's staff and prolonged and adversarial litigation. | ||
Service Company of New Mexico three customer groups. This task force 0 anticipates a continuing popu- Rate Filings was charged with examining the in-hift to the Southwestern Sunbelt. ventorying concept and providing a A and of rich cultural heritage and In 1984, the Commission approved recommendation on its application as the stipulated settlement of a rate a ratemaking method. | |||
burgeoning economic development, the Southwest will require a steady and relief request filed in August 1983, the Inventorying defers certain costs Company's first electric rate filing since associated with uncommitted capacity reliable supply of energy to match this | |||
~ October 1981. The April 1984 settle- above a 20 percent reserve margin. It expansion. As New Mexico and the ment allowed PNM's electric utility to also defers some of the cash return on Southwest region grow, the Com-collect approximately $ 300 million in shareholders'nvestment and accrues pany is committed to meet increasing | |||
( | customer demand with its electric, annualized revenues (excluding fuel a<(ustment clause revenues). The rate non-cash earnings while the plant is in inventory. Such deferred carrying gas, and water utilities. | ||
relief amounted to $ 46 million to be costs will be recovered from future Recognizing its obligation to promote 0 implemented in two steps. The first customers when the inventoried plant the success of its customers as well as increase, of $ 38.5 million, was imple- is placed into the rate base. | |||
. | its shareholders, PNM plays a unique mented in July 1984. An additional Inventorying includes other cost-role in the development of the region. | ||
increase of $ 7.5 mBlion was effective recovery methods. Revenues from bulk PNM believes in the importance of in February 1985. sales of inventoried capacity will be beneficial traditions of development, The bulk of the overall rate adjust- used first to pay fuel costs and other of goals shared with the citizens it | |||
~ ment reflects inclusion in the rate variable operating costs, then to pay serves, and of a special concern for base of PNM's portion of construction up to half of the depreciation and the land and the resources with which costs for the fourth and final unit at property tax costs. Any additional it is entrusted. | |||
the Company's coal-fired San Juan revenues will be allocated to these Generating Station (San Juan), located costs and carrying charges, which 1984 Earnings in northwest New Mexico. would otherwise be paid by future Careful management of Company customers. | |||
~ resources is reflected in revenues and Inventory of Capacity The plan also contains a cap which ea s. Net earnings for 1984 totaled limits the cost that customers will The Commission also approved in nillion. This represented a 14 pay in the future. | |||
December 1984 a stipulation between | |||
: p. increase in earnings over 1983, | |||
"Wherever humanity has made the hardest of all starts and lifteditself out of mere brutality, is a sacred spot." | |||
==-W)lie Cather I | |||
ILL I'pss L | |||
"CLIFF PERCHED ACOMA," Edward S. Curtis. 1904, Glass Plate Negative | |||
$ 164 million of bank lines of credit PNM purchased Southern Union's and revolving credit arrangements. New Mexico gas utility assets for net During the year, four rating agencies book value (less assumed liabilities) reviewed the Company's securities. of approximately $ 224.3 million, with Standard & Poor's Corp. and Fitch Southern Union to receive $ 172.8 mil-Securities Transactions Investors Service, Inc. reaffirmed lion. The $ 51.5 million difference Bonds issued in 1984 were comprised their ratings. Duff and Phelps, Inc. represents Southern Union's settlement of first mortgage bonds and pollution removed the Company from its credit- of the suit with all parties, including control revenue bonds. In August, watch list, maintaining its prior rating. PNM. As part of the settlement, PNM PNM sold $ 65 million of its First Moody's Investors Service lowered funded $ 15.6 million, in cash and by Mortgage Bonds, 13 1/8% Series due its rating on the Company's first issuing a note for $ 20 million, of the 1994. Proceeds were applied to reduce mortgage bonds and secured pollution total $ 51.5 million settlement amount | |||
~ short-term debt. In September, approx- control revenue bonds from Al to A2. to the other plaintiffs. The remaining imately $ 77 million of first mortgage Unsecured pollution control revenue $ 15.9 million of the settlement, less bonds was issued to secure PNM's bond ratings have been lowered from expenses, will be refunded to PNM's guarantee of an equal amount of 5.9% A2 to A3, with preferred stock ratings electric customers by PNM. | |||
Pollution Control Revenue Refunding reduced from a2 to a3. Customers will benefit from direct refunds made as part of the settlement | |||
~ Bonds, Series 1977 due 2007, issued and by PNM negotiations, made pos-by the City of Farmington, New Mexico. | |||
The refunding bonds were issued in sible through the acquisition, for lower 1977 to provide funds to pay two prior gas prices at the wellhead. | |||
issues of pollution control revenue bonds which matured October 1, 1984. Planning for the Future: New Mexico ecember, a total of $ 38.5 million Generating Station | |||
~ tion control revenue bonds PNM is considering a project with old in two series through the extraordinary potential for serving new Maricopa County, Arizona Pollution markets while contributing to the Control Corporation. The bonds were quality of life in the region. In August, issued to defray a portion of cost to the Company entered into an agreement PNM of certain pollution control facB | |||
As project'manager,'APS is responsible for maintaining schedules. | As project'manager,'APS is responsible for maintaining schedules. | ||
H | |||
,The Company's 102% interest in the project will amount to approximately 130 MW per unit or,a, total of 390 MW...Through December 31, 1984, the Company had expended approximately $ 691 million for,construction of its share of the PVNGS units, including allowance for funds used during construction ("AFUDC"), and approximately $ 45 million for nuclear fuel. Based on the Company's cori'struction budget-estimates, the total. estimated aggregate cost, excluding costs of related trans-mission facilities and nuclear fuel prior to commercial operation, but including AFUDC and costs of relate'd 'pollution coiitrol-facilities, is expected to be approximately $ 938 million; resulting in an | |||
'estimated cost "for 390 MW of approximately $ 2,405 per kW. Such estimate represents-'the Company's best current fore'cast. However, APS has adv'ised that actual completion dates, unexpected inflationary | |||
'pressures and compliance with any additio'nal governmental procedures and regulations could cause final'costs to vary substantially from these'nd any later estimates, as could changes in the plans 'of thepaiticipants'. '"' | |||
* I =-r In 7anuary,1985,.nuclear fuel loading was completed at PVNGS Unit. 1, which is scheduled for firm power operation by the end of 1985. Unit 2 is scheduled for fuel loading in the last quarter of 1985 and for firm power operation in the 'second quarter of 1986. Unit 3 is scheduled for fuel loading in the first quarter of 1987 and for firm power operation in the second quarter of.1987. Between fuel loading and firm power operation, each unit must undergo extensive testing. APS has indicated that- firm power operation represents the time when power from the units can be reliably scheduled for service o | |||
to "custome'rs,"although electricity would be produced prior to the firm power operation dates. | |||
I I','peration;of each ofthe three PVNGS units followingits completion will require the, obtaining of low'nd full power operating licenses from the NRC. An application | |||
PUBLIC SERVICE COMPANY OF NEW MEXICO (Registrant) | PUBLIC SERVICE COMPANY OF NEW MEXICO (Registrant) | ||
Date: March 28, 1985 By/s/J.D.GEIST J.D.Geist Cl>afrnmn of fhc Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. | Date: March 28, 1985 By /s/ J. D. GEIST J. D. Geist Cl>afrnmn of fhc Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. | ||
Signat r/s/J.D.GEIST J.D.Geist Chairman of the Board and President/s/A.J.ROBISON A.J.Robison Senior Vfce Presfdent, Ffnance/s/B.D.LACKEY B, D.Lackey Vice President and Corporate Controller | Signat r Capacity Date | ||
/s/J.P.BUNDRANT J.P.Bundrant | /s/ J. D. GEIST Principal Executive Ofhcer March 28, 1985 J. D. Geist and Director Chairman of the Board and President | ||
/s/A.G.ORTEGA A.G.Ortega/s/'R.R.REHDER R.R.Rehdcr/s/R.B.ROUNTREE R.B.Rountrce/s/R.H.STEPHENS R.H.Stephens/s/E.R.WOOD E.R.Wood | /s/ A. J. ROBISON Principal Financial Oflicer March 28, 1985 A. J. Robison Senior Vfce Presfdent, Ffnance | ||
/s/ B. D. LACKEY Principal Accounting OiBcer March 28, 1985 B, D. Lackey Vice President and Corporate Controller | |||
/s/ J. P. BUNDRANT Director March 28, 1985 J. P. Bundrant | |||
/s/ A. B. COLLINS, JR. Director March 28, 1985 A. B. Collins, Jr. | |||
/s/ C. E. LEYENDECKER Director March 28, 1985 C. E. Leyendecker | |||
/s/ A. G. ORTEGA Director March 28, 1985 A. G. Ortega | |||
/s/ 'R. R. REHDER Director March 28, 1985 R. R. Rehdcr | |||
/s/ R. B. ROUNTREE Director March 28, 1985 R. B. Rountrce | |||
/s/ R. H. STEPHENS Director March 28, 1985 R. H. Stephens | |||
/s/ E. R. WOOD Director March 28, 1985 E. R. Wood 39 | |||
~. | ~. | ||
UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al,=(Palo Verde Nuclear Generating Station, Unit 1) | UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al,= DOCKET NO STN 50-528 (Palo Verde Nuclear ~ J Generating Station, Unit 1) | ||
EXHIBIT B TO APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO GENERAL INFORMATION CONCERNING THE FIRST NATIONAL BANK OF BOSTON | |||
~, | ~, | ||
General.Information Concerning The Pirst National Bank of Boston Name: The Pirst National Bank of Boston (the"Bank")Address: 100 Federal Street Boston, Massachusetts 02110 Attention of Corporate Trust Division Description of business: The Bank is a national banking association and has been for a number of years the largest commercial bank in New England.Except for directors'ualifying shares, the Bank is a wholly-owned subsidiary of Bank of Boston Corporation | General. Information Concerning The Pirst National Bank of Boston Name: | ||
("BBC"), a bank holding company organiz'ed under Massachusetts law.Through its subsidiaries, principally the Bank, BBC is engaged in providing a wide variety of services to corporate and institutional cus-tomers, governments, individuals and other banks.These ser-vices include domestic corporate banking services, interna-tional banking services, investment and fund management ser-vices, personal banking services, trust services, and banking operations and corporate services.Through its Corporate Trust Division, the Bank provides corporate trust services to a broad range of entities.(1)Not applicable.- | The Pirst National Bank of Boston (the "Bank" ) | ||
(2)Not applicable. | Address: | ||
(3)(i)State of incorporation and principal location: The Bank is a national banking association chartered under the National Bank Act in 1864.The principal offices of the Bank are located in Boston, Massachusetts. | 100 Federal Street Boston, Massachusetts 02110 Attention of Corporate Trust Division Description of business: | ||
(3)(ii)Names of, directors and principal officers: The names of the directors of the Bank and BBC are set forth in | The Bank is a national banking association and has been for a number of years the largest commercial bank in New England. | ||
Information with respect to the..officers of the Bank and BBC is set forth on pages 86 and 87 of Attachment C hereto.(3)(iii)Neither the Bank.nor BBC is owned, controlled, or dom-inated by an alien, a foreign corporation, or a foreign government. | Except for directors'ualifying shares, the Bank is a wholly-owned subsidiary of Bank of Boston Corporation ("BBC"), a bank holding company organiz'ed under Massachusetts law. Through its subsidiaries, principally the Bank, BBC is engaged in providing a wide variety of services to corporate and institutional cus-tomers, governments, individuals and other banks. These ser-vices include domestic corporate banking services, interna-tional banking services, investment and fund management ser-vices, personal banking services, trust services, and banking operations and corporate services. Through its Corporate Trust Division, the Bank provides corporate trust services to a broad range of entities. | ||
Fur ther inf ormation relating to the U.S.citizenship of the Bank and BBC and the directors of the Bank B-1 | (1) Not applicable.- | ||
~i ps | (2) Not applicable. | ||
(4)The Bank will serve as trustee under two or more trust agreements to be dated as of December 15, 1985, between the Bank and the respective equity investors described in the Application to which this document is attached as Exhibit B.The trusts created by these trust agreements will (i)receive title to the interests in PVNGS Unit 1 conveyed thereto by PNM and (ii)lease such interests back to PNM, all as more fully described in said Application. | (3) (i) State of incorporation and principal location: | ||
Although the Bank is not legally an"agent" for or a"representative" of such equity investors, the Bank does act as trustee of the trusts of which such investors are the respective beneficiaries. | The Bank is a national banking association chartered under the National Bank Act in 1864. The principal offices of the Bank are located in Boston, Massachusetts. | ||
Under the terms of the trust agreements the Bank is generally obligated to act upon the instructions of the relevant equity investor/beneficiary so long as such instructions are not inconsistent with the provisions of documents constituting the sale and leaseback transaction. | (3) (ii) Names of, directors and principal officers: | ||
A copy of BBC's 1984 Annual Report is attached as Attachment C hereto.Provision to the Commission of BBC's 1984 Annual Report is without prejudice to the provisions of the respective trust agreements which provide that, (i)except in certain very limited circumstances (such as the Bank's wilful misconduct or gross negligence), the Bank is not answerable or accountable in its individual capacity and (ii)that all persons (individuals, partnerships, corporations, trusts, unincorporated associations or joint ventures, governments or any departments or agencies thereof, or any other entities)having any claim against the Bank, in its capacity as trustee, by reason of any aspect of the sale and leaseback transaction (including the holding by the Bank of legal title interests in PVNGS Unit 1)shall look only to the assets held by the Bank (including but not limited to the interests in PVNGS Unit 1 and PNM's obligations under the transaction documents) pursuant to the trust agreements for payment or satisfaction of such claim.Not applicable. | The names of the directors of the Bank and BBC are set forth in Attachments A and B her eto, respectively. Information with respect to the.. officers of the Bank and BBC is set forth on pages 86 and 87 of Attachment C hereto. | ||
(3) (iii) Neither the Bank. nor BBC is owned, controlled, or dom-inated by an alien, a foreign corporation, or a foreign government. Fur ther inf ormation relating to the U. S. | |||
citizenship of the Bank and BBC and the directors of the Bank B-1 | |||
~ i ps | |||
and BBC is contained in Attachments A and B hereto, respectively. | |||
(d) (4) The Bank will serve as trustee under two or more trust agreements to be dated as of December 15, 1985, between the Bank and the respective equity investors described in the Application to which this document is attached as Exhibit B. | |||
The trusts created by these trust agreements will (i) receive title to the interests in PVNGS Unit 1 conveyed thereto by PNM and (ii) lease such interests back to PNM, all as more fully described in said Application. Although the Bank is not legally an "agent" for or a "representative" of such equity investors, the Bank does act as trustee of the trusts of which such investors are the respective beneficiaries. Under the terms of the trust agreements the Bank is generally obligated to act upon the instructions of the relevant equity investor/beneficiary so long as such instructions are not inconsistent with the provisions of documents constituting the sale and leaseback transaction. | |||
The Bank is without knowledge, however, concerning possible foreign ownership, control or domination of the proposed equity investors, and is thus unable to provide information with respect thereto. | |||
(e) The Bank is not making application for a license unde>> 10 C.F.R. | |||
Part 50, or any other license available from the Nuclear Regulatory Commission. | |||
A copy of BBC's 1984 Annual Report is attached as Attachment C hereto. Provision to the Commission of BBC's 1984 Annual Report is without prejudice to the provisions of the respective trust agreements which provide that, (i) except in certain very limited circumstances (such as the Bank's wilful misconduct or gross negligence), the Bank is not answerable or accountable in its individual capacity and (ii) that all persons (individuals, partnerships, corporations, trusts, unincorporated associations or joint ventures, governments or any departments or agencies thereof, or any other entities) having any claim against the Bank, in its capacity as trustee, by reason of any aspect of the sale and leaseback transaction (including the holding by the Bank of legal title interests in PVNGS Unit 1) shall look only to the assets held by the Bank (including but not limited to the interests in PVNGS Unit 1 and PNM's obligations under the transaction documents) pursuant to the trust agreements for payment or satisfaction of such claim. | |||
(g) Not applicable. | |||
(h) Not applicable. | |||
B-2 | |||
l (i) | |||
(j) | |||
Not applicable. | |||
Not applicable. | Not applicable. | ||
B-2 | B-3 | ||
UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA, PUBLIC SERVICE COMPANY, et al, DOCKET NO. STN 50-528 (Palo Verde Nuclear Generating Station, Unit 1) | |||
ATTACHMENT A TO EXHIBIT B TO APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO AFFIDAVIT OF U S CITIZENSHIP OF THE FIRST NATIONAL BANK OF BOSTON | |||
AFFIDAVIT OF U.S. CITIZENSHIP The Cohue;.-alth of Massachusetts) | |||
) ss. | |||
County of Suffolk- ) | |||
I, T. McLean Griffin, 14 Beckford Street, Salem, Massachusetts, being duly sworn, depose and say: | |||
: 1. That I am Cashier, General Counsel, and Secretary of the Board of Directors of The First National Bank of Boston, a national banking association, organized and existing under the laws of the United States (hereinafter called the "Bank" ), with offices at 100 Federal Street, Boston, Massachusetts, in evidence of which organization a certified copy of the Articles of Association is filed herewith together with a certified copy of the By-Laws; | |||
: 2. That I am authorized by and on behalf of the Bank to execute and deliver this Affidavit of U.S. Citizenship; | |||
: 3. That the names of the Chairman of the Board of Directors who is the Chief Executive Officer, the President, and the Executive Vice Presidents or other individuals who are authorized to act in the absence or disability of the President or other Chief Executive Officer, and of the Directors of the Bank as of September 30, 1985, are as follows: | |||
Name, Title Date and Place of Birth Martin A. Allen Director January 27, 1931 Des Moine's, IA William F. Andrews Director October 7, 1931 Easton, PA Benjamin J. Bowden Executive Vice President June 13, 1932 Beverly, MA William L. Brown Chairman of the Board of February 1, 1922 Directors and Director Hendersonville, NC J. Richard Bullock Director March 2, 1923 Worcester, MA William J. Clark Director October 1, 1923 Kansas City, MO | |||
-Gary L. Countryman Director July 30, 1939 South Bend, WA John F. Cunningham Director March 5, 1943 Boston, MA | |||
O. | |||
Name Title Date and Place of Birth Alice F. Emerson Director October 26, 1931 Durham, NC Lawrence K. Fish Executive Vice President October 9, 1944 Chicago, IL Raymond C. Foster Director March 30, 1919 Watertown, MA Gerhard M. Freche Director July 13, 1931 Kansas City, MO Charles K. Gifford Executive Vice President November 8, 1942 Providence, RI Nelson S. Gifford Director May 3, 1930 Newton, MA T. McLean Griffin Senior Vice President, September 12, 1922 General Counsel and Lake Placid, NY Cashier Richard D. Hill Director November 6, 1919 Salem, MA D. Brainerd Holmes Director March 24, 1921 New York, NY Samuel Huntington Director April 24, 1939 Bayshore, N.Y. | |||
John G. McElwee Director December 19, 1921 Port Bannatyne, Scotland Donald F. McHenry Director October 13, 1936 St. Louis, MO Alan L. McKinnon Executive Vice President February 13, 1928 Boston, MA Clark W. Miller Executive Vice President January 25, 1930 Columbia, PA Colman J. Mockler, Jr. Director December 29, 1929 St. Louis, MO J. Donald Monan Director December 31, 1924 Blaisdell, NY | |||
Name Title Date and Place of Birth Edwin B. Morris, ZZI Executive Vice President July 19, 1939 Washington, D.C. | |||
Peter C. Read Executive Vice President March 15, 1936 Cambridge, MA Charles A. Sanders Director February 10, 1932 Dallas, TX Richard A. Smith Director November 1, 1924 Boston, MA Era Stepanian President and Director November 14, 1936 Cambridge, MA Stephen J. Sweeney Director December 15, 1928 Winthrop, MA Eugene M. Tangney Executive Vice President April 8, 1928 Boston, MA Paul N. Vonckx, Jr. Executive Vice President January 22, 1938 Cambridge, MA George R. West Director April 11, 1920 Boston, MA Richard A. Wiley Executive Vice President July 18, 1928 Brooklyn, NY and that each of said individuals is a citizen of the United States by virtue of birth in the United States, birth abroad of U.S. citizen parents, by naturalization during minority through the naturalization of a parent, by marriage to a U.S. citizen prior to September 22, 1922, or as otherwise authorized by law. | |||
. | |||
I I | |||
) | |||
0 | |||
: 4. That the information as to stock ownership, upon which the Bank relies to establish that the required percentage of stock ownership is vested in citizens of the United States as of September 30, 1985, is as follows: | |||
Name of Stockholder Number of Shares Percenta e of Shares Owned Bank of Boston 6,015,520 common 99+a Corporation Martin A. Allen William F. Andrews 0 J. Richard Bullock William L. Brown William J. Clark Gary L. Countryman John F. Cunningham Alice F. Emerson Raymond C. Foster | |||
* 80 Gerhard M. Freche Nelson S. Gifford | |||
* 86 Richard D. Hill D. Brainerd Holmes-* 80 Samuel Huntington John G. McElwee Donald F. McHenry Colman M. Mockler, Jr. | |||
J. Donald Monan | |||
* 80 Charles A. Sanders | |||
* 80 | |||
O. | |||
0 | |||
r Name of Stockholder Number of Shares Percenta e of S ares Owne Richard A. Smith Ira Stepanian Stephen J. Sweeney 0 George R. West | |||
* 80 | |||
* Tn Accordance witn the National Bank Act, each National Bank Director must own in his or her own right either shares of the capitol stock of the association of which he or she is a director the aggregate par value of which is not less than $ 1,000, or-an equivalent* interest in any company which has control over such association. As of September 30, 1985, these six (6) Directors of The First National Bank of Boston qualified with shares of capitol stock of the Bank. The remaining Directors, qualified with common stock of the Bank of Boston Corporation. | |||
: 5. That the controlling interest in said Bank, as established by the data hereinbefore set forth, is owned by citizens of the United States; that the title to such proportion of the stock of said Bank is vested in citizen of the United States free from any trust or fiduciary obligation in favor of any person not a citizen of the United States; that such proportion of the voting power of said Bank is vested in citizens of the United States; that through no contract'or understanding it is so arranged that the majority of the voting power of said Bank may be exercised, directly or indirectly in behalf of any person who is not a citizen of the United States; and that by no means whatsoever, is control of said Bank conferred upon or permitted to be exercised by any person who is not a citizen of the United States. | |||
: 6. That affiant has carefully examined this affidavit and asserts that all of the statement and representations contained therein are true to the best of his knowledge, information, and belief. | |||
Dated: | |||
/%/~ ~ | |||
T. McLean G xn | |||
The Commonwealth of Massachusetts) | |||
) ss. | |||
County of Suffolk ) | |||
On the 15th day of October, 1985, before me appeared T. McLean Griffin, to me personally known, who being by me duly sworn, did depose and say that he is the Senior Vice President, General Counsel, Cashier/ | |||
and Secretary of the Board of Directors of THE FIRST NATIONAL BANK OF BOSTON, a national banking association, that the seal was affixed to the instrumen" by T. McLean Griffin in his capacity aforesaid by authority conferred upon him by the By-Laws of the Bank and that he acknowledged said instrument to be the free act and deed of THE FIRST NATIONAL BANK OF BOSK)N. | |||
Notary Pub zc My commission expires March 31, 1989 | |||
~ ~ | |||
. | |||
~, | |||
o | |||
UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY't alg DOCKET NO STN 50-528 (Palo Verde Nuclear Generating Station, Unit l) e ATTACHMENT B TO EXHIBIT B TO APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO AFFIDAVIT OF U.S. CITIZENSHIP OF BANK OF BOSTON CORPORATION | |||
. | |||
o | |||
AFFIDAVIT OF U.S. CITIZENSHIP The Commonwealth of Massachusetts) | |||
)ss. | ) ss. | ||
Country of Suffolk ) | |||
I, T. McLean Griffin, of 14 Beckford Street, Salem, Massachusettsg being duly sworn, depose and say: | |||
: 1. That I am Clerk, General Counsel and Secretary of the Board of Bank of Boston Corporation, a Massachusetts corporation, organized and existing under the laws of the Commonwealth of Massachusetts "the Corporation", with offices at 100 Federal Street, Boston, Massachusetts, in evidence of which organization a certified copy of the By-Laws is filed; | |||
: 2. That I am authorized by and on behalf of the Corporation to execute and deliver this Affidavit of U.S. Citizenship; | |||
: 3. That the names of the Chairman of the Board of Directors, who is the Chief Executive Officer, the President, and other individuals who are successively authorized to act in the absence or disability of the Chairman of the Board and the names of the Directors of the Corporation as of September 30, 1985 are as follows: | |||
Name Title Date and Place of Birth Martin A. Allen Director January 27, 1931 Des Moines, IA William F. Andrews Director October 7, 1931 Easton, PA I | |||
William L. Brown Chairman and Director February 1, 1922 Hendersonville, NC J. Richard Bullock Director March 2, 1923 Worcester, MA William J. Clark Director October 1, 1923 Kansas City, MO Gary L. Countryman Director July 30, 1939 South Bend Washington John F. Cunningham Director March 5, 1943 Boston, MA | |||
. Alice F. Emerson Director October 26, 1931 Durham,- NC Raymond C. Foster Director March 30, 1919 New York, NY | |||
Name | 0 Name Title Date and Place of Birth Gerhard M. Freche Director July 13, 1931 Kansas City, MO Nelson S. Gifford Director May 3, 1930 Newton, HA T. McLean Griffin Clerk, General Counsel, September 12, 1922 and Secretary of the Lake Placid, NY Board of Directors Richard D. Hill Director November 6, 1919 Salem, HA Samuel Huntington Director April 24, 1939 Bayshore, N.Y. | ||
D. Brainerd Holmes Director May 24, 1921 New York John G. McElwee Director December 19, 1921 Port Bannatyne, Scotland Donald F. McHenry Director October 13, 1936 St. Louis, MO Alan L. McKinnon Executive Vice February 13, 1928 President, Comptroller Boston, MA and Treasurer Colman M. Mockler, Jr. Director December 29, 1929 St. Louis, MO J. Donald Monan Director December 31, 1924 Blaisdell, NY Charles A. Sanders Director February 10, 1932 Dallas, TX Richard A. Sm'th Director November 1, 1924 Boston, HA Xra Stepanian President and November 14, 1936 Director Cambridge, MA Stephen J. Sweeney Director December 15, 1928 Winthrop, MA | |||
Title Date and Place of Birth George R. West Director April 11, 1920 Boston, HA and that each of said individuals is a citizen of the United States by virtue of birth in the United States, birth abroad of U.S. citizen parents, by naturalization during minority through the naturalization of a parent, by marriage (if a women) to a U.S. citizen prior to September 22, 1922, or as otherwise authorized by law. | |||
: 4. That I have access to the stock books and records of the Corporation; that said stock books and records have been examined and disclose (a) that as of September 30, 1985 the Corporation had issued and outstanding 19,525,938 shares of Common Stock of the Corporation issued and outstanding owned of record by 13,936 stockholders; e | |||
(b) That the registered address of 13,854 owners as of September 30, 1985 of record of 19,463,294 shares of the issued and outstanding Common Stock of the Corporation are shown on the stock books and records of the Corporation as being within the United States, said 19g4631294 being ninety-nine and sixty-seven one hundredths per centum of the total number of shares of said stock; As of September 30, 1985 the Corporation had 1,045,712 issued and outstanding shares of Adjustable Rate Cumulative Preferred Stock, Series A (liquidation preference $ 50 per share). Of this amount, 1602 shareholders representing 99.81% of the total number of shares are United States citizens. As of September 30, 1985, the Corporation had 1,576,068 issued and outstanding shares of Adjustable Rate Cumulative Preferred Stock, Series B. Of this amount, 3,089 shareholders representing 99.87% of the total number of shares are United States citizens. | |||
(c) That pursuant. to Section 13 of the Securities Exchange Act of 1934, any beneficial owner of more than 5% of the Corporation's class of Common Stock is required to file a report on Schedule 13G or 13D with the Securities and Exchange Commission with a copy sent to the Corporation. The records of the Corporation indicate that only two Schedule 13G and no Schedule 13D was filed in 1985 with respect to the Corporation's Common Stock. A Schedule 13G was filed by Wellington Management CompanyjThorndike, Doran, Paine & Lewis ("Wellington" ) who beneficially owned 1,638,129 shares of the Common Stock of the Corporation, representing 8.53% of the issued and outstanding Common Stock of the Corporation as of December 31, 1984. A Copy of this Schedule 13G is enclosed herewith as Exhibit A an indicates that no one advisory client of Wellington has ownership of more than 5% of the issued and outstanding Common Stock of the Corporation (see Etem 6 of the attached Schedule 13G) and that Wellington has shared voting power with respect to only 146,900 of such shares, and shared investment discretion with respect to all such shares. As of September 30, 1985, the beneficial ownership of Wellington was 1,728,349 shares of the Common Stock of the Corporation, representing 8.88%. Wellington has shared voting power with respect to only 266,100 of such shares, and shared investment discretion for all shares. | |||
0' (d) That the following individuals are all partners of "Wellington" and that each of said individuals is a citizen of the United States of America unless otherwise indicated. | |||
Daniel A. Abeam Nancy T. August Vincent Bajakian Anthony T. Cope (U.K. | |||
William D. DiZanni Robert W. Doran Charles T. Freeman James C. French John H. Goocl William C. S. Hicks William D. Jones, Jr. | |||
0' (d)That the following individuals are all partners of"Wellington" and that each of said individuals is a citizen of the United States of America unless otherwise indicated. | F. Danby Lackey, IIZ George Lewis Earl E. McEvoy Duncan M. McFarland Paul M. Mecray, ZZI Ernst Hans von Metszch(Netherlands) | ||
Daniel A.Abeam Nancy T.August Vincent Bajakian Anthony T.Cope (U.K.William D.DiZanni Robert W.Doran Charles T.Freeman James C.French John H.Goocl William C.S.Hicks William D.Jones, Jr.F.Danby Lackey, IIZ George Lewis Earl E.McEvoy Duncan M.McFarland Paul M.Mecray, ZZI Ernst Hans von Metszch(Netherlands) | Jerrold I. Mitchell John B. Neff John A. Myheim Edward P. Owens Stephen D. Paine Saul J, Pannell Stephen M. Pazuk Eugene E. Record, Jr. | ||
Jerrold I.Mitchell John B.Neff John A.Myheim Edward P.Owens Stephen D.Paine Saul J, Pannell Stephen M.Pazuk Eugene E.Record, Jr.Dena W.Reed David W.Scudder Binkley C.Shorts Stephen A.Soderberg Ralph E.Stuart, Jr.Paul G.Sullivan W.Nicholas Thorndike Gene R.Tremblay James L.Walters Francis V.Wisneski That"Wellington", holds title as nominee, to none of the shares of Common Stock as of September 30, 1985;all such shares are held in nominee names of individual clients.That the beneficial interest of such shares is held by 30 discrentionary client accounts of which shares 1,685,176 or 8.74%is shown to be held by stockholders having registered addresses within the United States;and That n n~cf the'wners of the shares so held owns 5 percent or more of the issued and outstanding common stock. | Dena W. Reed David W. Scudder Binkley C. Shorts Stephen A. Soderberg Ralph E. Stuart, Jr. | ||
Paul G. Sullivan W. Nicholas Thorndike Gene R. Tremblay James L. Walters Francis V. Wisneski That "Wellington", holds title as nominee, to none of the shares of Common Stock as of September 30, 1985; all such shares are held in nominee names of individual clients. | |||
That the beneficial interest of such shares is held by 30 discrentionary client accounts of which shares 1,685,176 or 8.74% is shown to be held by stockholders having registered addresses within the United States; and That n n~ cf the'wners of the shares so held owns 5 percent or more of the issued and outstanding common stock. | |||
0 0 | |||
(e) That as of December 31, 1984 Sanford C. Bernstein and Co., Inc. | |||
was the holder of record ownership of 1,290,160 shares or 6.7% of the Common Stock of the Corporation, with sole investment discretion for 1,290,160 shares and sole voting power for all 348,500 shares. A copy of this Schedule 13G is enclosed herewith as Exhibit B. | |||
(f) That none of the owners of the shares so held owns 5S or more of the issued and outstanding Common Stock. | |||
(g) That the following individuals are all directors of Sanford C. | |||
Bernstein and Co., Inc. and are all U.S. citizens. | |||
Valjean C. Bernstein, Chairman Lewis A. Sanders, President Roger Hertog Joseph B. Greeley Stuart K. Nelson (h) As of July 31, 1985, Sanford C. Bernstein and Co., Inc. held 250 shares of Common Stock of the Corporation. | |||
(i) As of September'30, 1985, no other stockholder owned of record 5% or more of the outstanding Common Stock of the Corporation other than Cede & Co., a nominee for The Depository Trust Company, who owned of record 13,985,104 shares, or 71.62% of the issued and outstanding Common Stock. Cede & Co., owned 502,996 shares of Adjustable Rate Cumulative Preferred Stock, Series A or 48.1% of the issued and outstanding stock. | |||
Cede & Co., owned 692,289 shares of Adjustable Rate Cumulative Preferred Stock, Series B or 43.928 of the issued and outstanding stock. The Depository Trust Company is a limited purpose trust company chartered under the Banking Law of the State of New York, a member of the Federal Reserve System, and a | |||
Overall, loan and lease financing volume, which increased 27%, was strongest in the areas of real estate, commercial lending and asset-based financing. | Overall, loan and lease financing volume, which increased 27%, was strongest in the areas of real estate, commercial lending and asset-based financing. | ||
eal estate lending continues to report strong 0 th as its loan volume increased by over 35%. | |||
construction lending was once again a major reason for this improvement, reQecting strong demand for new loans from existing customers as well as normal advances to complete projects originated in previous years. The increase also e reQected the first full year of having SWD as a subsidiary and from the addition of Casco. | |||
Commercial lending benefited from the generally improved economy which brought about increased borrowings by existing customers as well as new business. Some areas, such as the Massachusetts e Corporate Lending function which serves the state' small and middle sized businesses, also carried out a more selective and productive marketing'effort. This function reached its goal of doubling its volume in 1984. | |||
The asset-based financing function specializes in secured financing techniques such as factoring, receivable and inventory financing and chattel mortgage loans. In 1984, because of their knowledge and expertise in these types of financing, this function was able to increase its average loan portfolio by over 50%. | |||
29 | |||
The increase in loan fees was primarily ~ | |||
attributable to higher commercial loan fees of $ 7 Nonperforming Loans and Leases n d Ean' peeslsw<E/fal million, commitment fees of $ 5.2 million and fees Cents S hllllions from BancBoston Mortgage Corporation of $ 1.8 450 million. SWD and Casco added $ 2.9 million and | |||
$ 1.5 million, respectively. | |||
400 Moderating the positive effects of loan growth and ~ | |||
350 higher fees was a $ 19 million increase in the provision for uncollectible income. This rise resulted 300 from a combination of factors including an increase 250 in nonaccrual loans and leases to $ 244 million at December 31, 1984 from $ 185 million last year; a 200 higher average base lending rate during the year; ~ | |||
150 and lower recognition of cash previously received and deferred on loans that had been on nonaccrual. | |||
100 100 75 Interest rates, which affect net interest revenue, at the end of 1984 were approximately the same as at | |||
[ | |||
50 50 25 the end of 1983, although the average base lending rate rose 126 basis points during 1984. Specifically, 1979 1980 1981 1982 1983 1984 the base rate began the year at 11%, where it | |||
~ | |||
4 Principal at Year End E EPS Effect remained until the end of the first quarter when it increased 50 basis points. In the second quarter, it rose steadily until it reached a high of 13%, a level that was maintained throughout the third quarter. | |||
During the fourth quarter, the base rate fell to its ~ | |||
year end level of 10.75%. | |||
The effect of movements in the base rate are indicated in changes in average rates on earning assets and interest bearing liabilities. During the first quarter, the yield on earning assets remained constant, but the average cost of funds rose 34 basis points, thus causing narrower spreads that stabilized | |||
~ | |||
in the second quarter. Spreads were further constricted in the third quarter as increases in the cost | |||
United States Operations: | United States Operations: | ||
Commercial, industrial and financial Real estate | Commercial, industrial and financial $ 198.3 2.8% $ 125.1 2.4% $ 152.3 3.1% $ 99.2 2.3% $ 58.5 1.5% | ||
Real estate construction 24.3 2.5 37.2 4.6 8.8 1.5 17.2 4.0 2.8 .7 Real estate-other 9.3 .7 11.7 1.5 4.8 .8 10.2 1.8 9.6 2.5 Loans to individuals 7.8 6.6 5.4 .9 19.5 3.4 | |||
' | |||
9.0 1.0 1.3 1.1 Lease financing 3.2 1.2 3.7 1.7 4.8 2.3 1.7 1.0 244.1 2.4 185.5 2.4 177.3 2.6 133.7 2.3 90.4 1.8 International Operations: | |||
Commercial and industrial 150.0 6.3 111.6 3.9 70.9 2.8 Banks and other financial institutions 12.4 2.5 14.4 2.8 10.4 1.9 Governments and official institutions 51.8 5.8 9.6 2.0 17.2 4.9 Lease financing .8 .3 .3 .1 1.1 .3 Allother 8.8 3.6 4.4 1.7 6.6 2.9 223.8 5.3 140.3 3.2 106.2 2.7 101.2 3.0 64.6 1.9 | |||
$ 467.9 3.2% $ 325.8 2.7% $ 283.5 2.6% $ 234.9 2.5% $ 155.0 The breakdown by category of International nonaccrual loans and leases for years prior to 1982 is not available. | |||
74 | |||
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued llowing is an analysis of interest income re ated to loans and leases on nonaccrual at December 31, 1984: | |||
United States International (in millions) Oyerations Oyerations Total Interest income that would have been recognized e during the period lf the loans had been current at original contractual rates $ 24.4 $ 36.2 $ 60.6 Amount recognized as interest income 7.9 10.8 18.7 Difference $ 16.5 $ 25.4 $ 41.9 Renegotiated Loans: | |||
A renegotiated loan is one for which the adequate level, considering net losses charged to the Corporation has compromised the contractual terms Reserve, current economic conditions, sovereign and to provide a reduction in the rate of interest and, in transfer risks, changes in the size and character of most instances, an extension of payments of principal the credit risks, and other pertinent factors or interest or both because of a deterioration in the warranting current recognition. | |||
financial position of the borrower. Renegotiated The Corporation charges all or a portion of a loan or loans, which are performing in accordance with their lease receivable against the Reserve when a new terms, are not included in outstanding loans for which the related accrued interest receivable was probability of loss has been established, with consideration given to such factors as the customer' ially or fully reserved unless concern exists as to financial condition, underlying collateral and | |||
' | |||
timate collection of principal or interest. | |||
The | guarantees. The Corporation utilizes a loan rating for which contractual interest rates had been reduced and which are performing in accordance system in its United States and International with their new terms were less than .1% of total Operations to assist management in its evaluation of the loan portfolio. At least annually, individual related consolidated loan categories in 1981 through loans are reviewed and assigned ratings based 1984. In 1980, the total balance was $ 33.7 million | ||
~ or .4%. principally upon potential risk. If indicated by the assigned rating, particular loans are reviewed more Reserve for Possible Credit Losses frequently. | |||
$1, | The Corporation's reserve for possible credit losses In addition, the Corporation's independent certified public accountants review the loan and lease (the "Reserve" ) is available for future charge-offs of extensions of credit..The provision for credit losses financing portfolio on an annual basis. The loans of the Corporation's bank subsidiaries are also subject to (the "Provision" ), added to the Reserve by charges to periodic examination by bank regulatory authorities. | ||
income, is based upon management's estimation of the amount necessary to maintain the Reserve at an 75 | |||
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued Allocation of Reserve for Possible Credit Losses The Corporation does not allocate its reserve for possible credit losses to specific loan and lease consideration to management's evaluation of risk in the portfolios, current economic conditions, recent | |||
~. | |||
8. | categories because management views the reserve as years'oss experience, and the review of the loan being available for all categories of prospective loss. portfolio of the Bank by the Comptroller of the However, to be responsive to the Securities and Currency. The unallocated reserve in 1984 was Exchange Commission's Guides for Statistical increased to reflect the effect of the $ 100 million Disclosures by Bank Holding Companies, the special provision recorded during the year. See Corporation has allocated its year end reserves for Note 6 of Notes to Financial Statements. Based possible credit losses to the major loan and lease upon the foregoing, the allocations of the Reserve categories. The allocations result from giving were as follows: | ||
Loans and Lease Financing December 31 1984 1983 1982 1981 1980 Percent Percent Percent Percent Percent (dollars in millions) Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total United States Operations: | |||
Commercial, industrial and financial $ 7,010.5 48.1% $ 5,253.2 44.2% $ 4,945.9 46.1% $ 4,339.8 4S.4% $ 3,900.0 44.1% | |||
Real estate 2,285.1 15.7 1,588.5 13.3 1,173.4 11.0 990.4 10.4 753.5 8.5 Loans to individuals 921.4 6.3 620.2 5.2 602.2 5.6 618.5 6.5 570.2 6.4 Lease financing 264.2 1.8 213.0 1.8 214.0 2.0 171.3 1.8 131.7 1.5 10,481.2 71.9 7,674.9 64.5 6,935.5 64.7 6,120.0 64.1 5,355.4 International Operations 4,306.3 29.5 4,439.0 37.3 4 018 0 37 5 58 2 38.3 3,679.9 14,787.5 101.4 12,113.9 101.8 10,953.5 102.2 9,778.2 102.4 9,035.3 102.1 Unearned income (199.0) (1.4) (218.0) (1.8) (239.3) (2.2) (227.2) (2.4) (187.8) (2.1) | |||
$ 14 588.5 100.0% $ 11,895.9 100.0% $ 10,714.2 100.0% $ 9,551.0 100.0% $ 8,847.5 100.0% | |||
Allocation of Reserve for Possible Credit Losses December 31 1984 1983 1982 1981 1980 Percent Percent Percent Percent Percent (dollars in millions) Amount of Total Amount of Total Amount of Total Amount of Tolal Amount of Total United States Operations: | |||
Commercial, industrial and financial $ 54.0 22.3% $ 39.0 28.7% $ 36.0 29.0% $ 36.0 30.7% $ 31.0 30.3% | |||
Real estate 7.0 2.9 8.0 5.9 6.0 4.8 7.0 6.0 5.0 4.9 Loans to individuals 8.0 3.3 6.0 4.4 7.0 5.6 8.0 6.8 8.5 8.3 Lease financing 2.0 .8 2.0 1.5 4.0 3.2 2.0 1.7 2.0 2.0 71.0 29.3 55.0 40.5 53.0 42.6 53.0 45.2 46.5 45.5 International Operations 50.0 20.6 40.0 29.5 34.0 27.4 29.0 24.8 25.1 24.5 121.0 49.9 95.0 70.0 87.0 70.0 82.0 70.0 71.6 70.0 Unallocated 121.4 50.1 40.8 30.0 37.4 30.0 35.1 30.0 30.7 30.0 | |||
$ 242.4 100.0% $ 135.8 100.0% $ 124.4 100.0% $ 117.1 100.0% $ 102.3 100.0% | |||
76 | |||
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued is of Reserve for Possible Credit Losses 0 The following table presents a five year analysis of the Corporation's reserve for possible credit losses. | |||
(in millions) 1984 1983 1982 1981 1980 United States Operations: | |||
Balance, January 1 $ 78.4 $ 76.5 $ 76.2 $ 67.4 $ 61.3 Reserves of acquired companies 6.5 1.6 .6 .6 Provision 115.3 22.7 26.2 15.8 Credit losses, net of recoveries: | |||
Commercial, industrial and financial: | Commercial, industrial and financial: | ||
Losses (55.5) (27.7) (20.4) (23.5) (13.8) | |||
Recoveries 12.9 9.4 15.8 10.9 8.8 (42.6) (18.3) (4.6) (12.6) (5.0) | |||
Real estate construction: | |||
Losses (.3) (2.0) | |||
Recoveries 1.0 | |||
.7 (2.0) | |||
Real estate other: | |||
Losses (.3) (3) (3) | |||
Recoveries .2 .1 (3) (2) | |||
Loans to individuals: | |||
Losses (5.2) (5.1) (5.5) (6.9) (6.1) | |||
Recoveries 2.4 2 | |||
/ | / | ||
In 1981 the Nuc 1 ear Regu 1 atory Commi ss i on proposed additional guidelines regarding the funding requirements for decommissioning at | In 1981 the Nuc 1 ear Regu 1 atory Commi ss i on proposed additional guidelines (5) regarding the funding requirements for decommissioning at the end of plant lifetime, and in addition proposed new funding requirements for early decommissioning which would not normally be anti-cipated. The cost for such early decommissioning would be similar, but slightly lower than that developed for "end of life", because the total induced radioactivity would be somewhat less as a result of shorter radiation exposure. It has been proposed by NRC that utilities maintain property damage insurance available to the nuclear industry which could be applicable to such early and unanticipated Decommissioning | ||
\(5) | \ | ||
po | (5) "Decommissioning Criteri a for Nuclear Facilities; Notice of Availability of Draft Generic Environmental Impact Statement", | ||
Federal Re ister, 46:11666, February 10, 1981. | |||
" nterim Fina Rule Requiring Utility Licensees to Purchase On-(6) i i i i i id ". ~Fd i R i t, Site Property Insurance to be Used for Decontamination Expenses i1982. 47:1375ii, N i 31, | |||
po | |||
==SUMMARY== | ==SUMMARY== | ||
AND CONCLUSIONS Basis of Study This decorrrnissioning study updates the costs developed in previous studies in several ways as summarized below: 1.A review has been completed of the major components of the plant to assure that the weights and volumes are appropriate for the PVNGS as designed and built;2.Labor cost and construction equipment charges have been updated to January 1, 1982 dollars;3.Radioactive waste shipment and disposal charges have been updated to conform to current charges for such service;4.A credit has been taken for those items and materials which have a positive salvage value;5.A task and work schedule was pr'epared and analyzed so as to form a basis for the cash flow required for the manpower, contract services, equipment and fees; 0 | AND CONCLUSIONS Basis of Study This decorrrnissioning study updates the costs developed in previous studies in several ways as summarized below: | ||
6.Expensed nuclear fuel has been eliminated from the cost of disposal as these charges are recovered from utility customers as a part of fuel cycle cost.A major reference used in developing the manpower and cost analysis is the detailed report prepared for the Nuclear Regulatory Commission on the decommissioning of a pressurized water reactor station.In addition, several other historic and current decomissioning reports were utilized to develop the plan and cost summarized in this document.These costing data as developed and presented in these h references, and specifically the prior PVNGS S.M.Stoller Studies have been reviewed and compared to the updated costs presented herein as a check for consistency. | : 1. A review has been completed of the major components of the plant to assure that the weights and volumes are appropriate for the PVNGS as designed and built; | ||
(7) | : 2. Labor cost and construction equipment charges have been updated to January 1, 1982 dollars; | ||
~.,K~h | : 3. Radioactive waste shipment and disposal charges have been updated to conform to current charges for such service; | ||
-~ | : 4. A credit has been taken for those items and materials which have a positive salvage value; | ||
REFERENCE DECOMMISSIONING SCENARIO The ANPP reference for decoomissioning OF PVNGS is that of-scenario"A"-"Complete Removal" (immediate dismantlement) after plant shutdown which includes the decontamination and removal of all radioactive components and materials followed by the demolition of all structures to below grade and the regrading of the site.This scenario A reference was decided upon, rather than scenario"8"-"Safe Storage" followed by dismantlement or"C", long term"Entombment" also followed by dismantlement, as scenario A represents the most straight-forward approach to recovery of the site to its original condition and its early subsequent unlimited use.Immediate dismantlement also is con-servative in that it results in the highest"Present Worth" dollar cost which must be provided at the time of plant shutdown.The other two decommissioning alternatives although they result in higher total dollars, are lower in"Present Worth" charges.Table I sumnarizes the cash flow for the three alternatives in 1982 dollars as a function of years after shut-down and it also summarizes the"Present Worth" cost of these different patterns of expenditure using a 3 percent discount rate.Another factor in the decision to use the immediate dismantlement, scenario A, as the decommissioning reference is the view expressed in the NRC draft statement on decommissioning of nuclear facilities | : 5. A task and work schedule was pr'epared and analyzed so as to form a basis for the cash flow required for the manpower, contract services, equipment and fees; | ||
.In (13)Or aft Generic Environmental Im act Statement, NUREG-0586, U.S.Nuclear Regulatory Commission, January 1981. | |||
0 | |||
: 6. Expensed nuclear fuel has been eliminated from the cost of disposal as these charges are recovered from utility customers as a part of fuel cycle cost. | |||
A major reference used in developing the manpower and cost analysis is the detailed report prepared for the Nuclear Regulatory Commission on the decommissioning of a pressurized water reactor station . In addition, several other historic and current decomissioning reports were utilized to develop the plan and cost summarized in this document. These costing data as developed and presented in these h | |||
references, and specifically the prior PVNGS S. M. Stoller Studies have been reviewed and compared to the updated costs presented herein as a check for consistency. | |||
(7) R.l.lith,d.l.Khdil.l.KKK,R Safet and Costs of Decommissionin a | |||
~ .,K~h Reference Pressurized Water Reactor Power Station, NUREG/CR-130, Prepared by Pacific Northwest Laboratory for U.S. Nuclear Regulatory Comnission, June 1978, Addendum, August 1979. | |||
(8) H. D. Oak et al., Technolo Safet and Costs of Decommissionin a Reference Boi 1 in Water Reactor Power Station, NUREG/CR-0672, Prepared by Pacific Northwest Laboratory for U.S. Nuclear Regulatory Commission, June 1980. | |||
(9) W. J. Manion, T.S. La Guardia and P. Garrett, An En ineerin Ev'aluation of Nuclear Power 'Reactor Decommissionin A ternatives, N - - R, a Natsona Environmenta tudses Project of the Atomic Industrial forum, Inc., November 1976. | |||
(10) B. J. Davis, "Elk River Reactor Dismantling", Proceedin s of the First Conference on Decontamination and Oecommissionin 0 8 0 of RDA and, d | |||
Prepared by Northeast I"'"' | |||
aci itches, CONF- 5-82 p. 83, August 975. | |||
d I Ihllt" II't Utilities Service Company, Ber K. | |||
in, Connecticut, May, 1981. | |||
(12) Op. Cit. (1), (2). | |||
&7& | |||
- ~ | |||
REFERENCE DECOMMISSIONING SCENARIO The ANPP reference for decoomissioning OF PVNGS is that of- scenario "A"- | |||
"Complete Removal" (immediate dismantlement) after plant shutdown which includes the decontamination and removal of all radioactive components and materials followed by the demolition of all structures to below grade and the regrading of the site. | |||
This scenario A reference was decided upon, rather than scenario "8" -"Safe Storage" followed by dismantlement or "C", long term "Entombment" also followed by dismantlement, as scenario A represents the most straight-forward approach to recovery of the site to its original condition and its early subsequent unlimited use. Immediate dismantlement also is con-servative in that it results in the highest "Present Worth" dollar cost which must be provided at the time of plant shutdown. The other two decommissioning alternatives although they result in higher total dollars, are lower in "Present Worth" charges. Table I sumnarizes the cash flow for the three alternatives in 1982 dollars as a function of years after shut-down and it also summarizes the "Present Worth" cost of these different patterns of expenditure using a 3 percent discount rate. | |||
Another factor in the decision to use the immediate dismantlement, scenario A, as the decommissioning reference is the view expressed in the NRC draft statement on decommissioning of nuclear facilities . In (13) Or aft Generic Environmental Im act Statement, NUREG-0586, U.S. | |||
Nuclear Regulatory Commission, January 1981. | |||
~ '<<<< ~ ~ ll ~ ~ ~l ~l ~ ~l l ~ ll ~l ~ I~ a ~ | |||
.e TABLE 1 PALO VERDE NUCLEAR GENERATING STATION DECOMMISSIONING COSTS FOR ONE UNIT TOTAL COST AND CASH FLOM FOR ALTERNATIVE DEC9%ISSIONING SCENARIOS (Millions of 1982 Dollars} | |||
SCENARIO YEAR A B C (0 is the Immedi ate Mothballing Iso 1 at i on Time of Dismantlement Followed by Followed by Shutdown B Remov~)B~ Removal Removal>>) | |||
DECON SAFSTOR ( ENTOMB | |||
<<2 1.1 1.1 1.1 | |||
-1 3.0 2.7 2.8 15.1 79.1 10.3 22.6 11.3 26.6 28.0 6.6 9.1 23.8 1. 2. | |||
8.1 0.14 0.0 3.4 1.2 5-27*-$ /Year 0.14 0.0 28 0.5 0.6 29 1.7 1.9 30 12.6 65.8 12.8 67.1 31 22.8 23.1 32 20.3 20.6 33 7.9 8.1 TOTAL 1982 $ 79.1 91. 8 94. 9 PRESENT WORTH $ ~ 74.3 50.2 53.1 | |||
* Could be for a shorter or longer isolation period which would result in higher or lower present worth costs. | |||
0 (13) | |||
Based on 3X/year discount rate to zero time (shutdown of reactor). | |||
'Nomenclature used by NRC - NUREG 0586 | |||
O. | |||
- ~ | |||
that document, although it was stated that 30 year SAFSTOR (Scenario 8) was a reasonable option, longer term, e.g. "100 Year SAFSTOR (or presumably a similar ENTOMB period) is not considered a reasonable option since it results in the continued presence of a site dedicated to radioactivity containment for an | |||
~ | |||
extended time period. | |||
~ | |||
It was also stated (13) NUREG-0585 that the economics op cit. were not as good. | |||
The cost data in Table 1 assumes that each unit on the PVNGS site would be decommissioned separately. If multiple'units were to be decoomissioned at about the same time there would be some savings per unit as a result of sharing comnon costs (e.g. planning, engineering, licensing), from more efficient use of personnel and equipment and also from "learning" from the first unit to the next. | |||
These savings have been estimated and the cash flows and totals for a three-unit deconmissioning, with a time displacement of two years between units, is summarized in Table 2 for the scenario A alternative. This two-year displacement is reasonably optimum which is illustrated by the relatively level total cash flow. | |||
The costs and cash flows in Table 1 have been used as a basis for a funding requirement and a recommended funding plan. | |||
A summary by major components of costs for the reference decoomissioning is given in Table 2. It should be noted that fuel shipment and disposal are not included as these charges are incorporated into the fueI cycle costing and are collected from customers and accrued during the operating period. | |||
> | > | ||
TABLE 2 PVNGS Decomissionin Cost for Nu1ti 1e Units SCENARIO A-Immediate Dismant1ement and Reaeva1 (DECON)Cash F1ow-(Mi1lions of 1982 Dol1ars).'ear (0 is time of Shutdown Unit 1)-2 | TABLE 2 PVNGS Decomissionin Cost for Nu1ti 1e Units SCENARIO A - Immediate Dismant1ement and Reaeva1 (DECON) | ||
Cash F1ow - (Mi1lions of 1982 Dol1ars) | |||
In the past most contaminated materials, those with"surface" radioactivity, have not been sufficiently decontaminated to be useful as standard items of commerce, although sufficient decontamination could theoretically be ac-complished and in some cases has actually been achieved.Whether the ad-ditional expenditure of funds for this extra treatment is justified, would have to be determined from a balance between those costs, radioactive transportation and disposal charges, and the market for such commercial scrap material.As this balance has not been well established from historical data to date, we have stayed with the known technology, the more conservative approach, which results in a higher cost and assumed disposal."12-O.Qo TABLE 3 SCARY OF PALO VERDE DECRSISSIONING COST ESTIMATE SINGLE AND MULTIPLE UNIT DECOSIISSIONING Scenario"A"-Immediate Dismantlement and Demolition (DECON)l Millions of 1982$Cost Cate or Unit 1 Unit 2 5 3 Disposal of Radioactive Material | . 'ear Unit 1 Unit 2 Unit 3 TOTAL (0 is time of Shutdown Unit 1) | ||
-2 3.0 3.0 15.1 0.2 15.3 28.0 0.5 28.5 23.8 14.7 0.2 38.7 8.1 27.1 0.5 35.7 23.5. 14. 7 38.2 8.1 27.1 35.2 23.5 23.5 8.1 8.1 TOTAL 79.1 74.1 74.1 227.3 | |||
0 I~'~4 I V~~~~~~~\g I~~~.FIGURE PVNGS | / | ||
For the non-radioactive portions of the plant the demolition costs are a net charge as the demolition contractor would sell, for his own account, that equipment having a positive salvage value.This was the basis on which the estimate was developed Costing Procedures The principle costing reference is that of NUREG-130, the very complete PWR decommissioning, study developed by the NRC.As this study wa's completed in May 1978 and published shortly thereafter, it is necessary to update the costing to account for economic changes between that date and today.In addition diferences in plant design, site location, a project management approach and energy costs all require additional corrections for the final costs to be appropriate for the PVNGS units.Those charges previously developed for PVNGS were to a large extent based on the decommisioning of the Elk River reactor-the only major nuclear facility fully dismantled and demolished. | PRESENT WORTH 74. 3 65.3 61.5 201.1 (to Zero Time 9 3X per year) | ||
A check of this historic data against the updated NUREG-130 provides an independent correlation and con-fidence in the costs developed. | |||
J.N.Hc Farland, Re ort on Re resentative Cost Estimates for Demolition of Structures at a Pressurized Water Reactor Site, N-, repared or Batte e, Pacifsc Northwest La oratory, by McFarland Wrecking Corporation, Seattle WA 98108, September 30, 1976. | o | ||
i o Several major corrections were made to the data developed in the NRC report to make the costs applicable to the PVNGS site.These are summarized as follows: 1.Labor cost-The labor unit rates have been adjusted to account for escalation between 1978 and 1982.2.Tools, equipment and supplies-Adjusted from 1978 to 1982 with a composite index of steel products, chemical, electrical, and commodities. | ~, | ||
3.Electrical energy-Use of a current incremental electrical cost for Arizona as compared to the lower"average" cost used in NUREG-130. | |||
4.Contr act demolition | ~ ~ ~ I~ ~ ~ ~l '~t I ~ ~ ~ ~ ~ IM I ~ '~' | ||
-Adjusted for increases in construction labor and equipment. | The cost savings for the second and third units are also summarized in Table 3. These savings result from a nominal expenditure for additional planning, engineering and licensing requirements and modest savings, on the order of five percent from more efficient use of labor, radioactive waste packaging and improved scheduling as a result of learning on the first unit. There is a reasonable possibility that even more savings may develop. To maintain a conservative approach a twenty five percent con-tingency has been used for all three units. | ||
5.Waste Disposal-Use of current rates which have increased by more than 400K for disposal charges.In addition, shipping charges are based on a 500 mile shipment (reflecting state/regionalization of disposal sites)and actual current tarriff rates. | The cash flow requirement has been developed from. the costing of the "Major | ||
) | ~ Activities" which are shown on a project schedule, Figure 1, and the total expenditures as sumnarized in Table 3. Inherent in this cash flow de-velopment is a a credit for the sale of scrap equipment or materials. In the past most contaminated materials, those with "surface" radioactivity, have not been sufficiently decontaminated to be useful as standard items of commerce, although sufficient decontamination could theoretically be ac-complished and in some cases has actually been achieved. Whether the ad-ditional expenditure of funds for this extra treatment is justified, would have to be determined from a balance between those costs, radioactive transportation and disposal charges, and the market for such commercial scrap material. As this balance has not been well established from historical data to date, we have stayed with the known technology, the more conservative approach, which results in a higher cost and assumed disposal. | ||
~~~~~ | "12- | ||
7.Size-Related to most of the above items.Corrections were made for the somewhat larger size of the unit and for specific quantities take-off. | |||
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TABLE 3 SCARY OF PALO VERDE DECRSISSIONING COST ESTIMATE SINGLE AND MULTIPLE UNIT DECOSIISSIONING Scenario "A" - Immediate Dismantlement and Demolition (DECON) l Millions of 1982 $ | |||
Cost Cate or Unit 1 Unit 2 5 3 Disposal of Radioactive Material 18.8 17.9 Labor 16.7 15.9 Energy 12.6 12.6 Contract Demolition* . 7.4 7.1 Insurance 1.2 1.2 Licensing 1.5 .2 Special Tools and Equipment 1.7 1.0 Miscellaneous Supplies 3.4 3.4 TOTAL 63.3 59.3 Contingency 9 25K 15.8 14. 8 GRAND TOTAL $ 79.1 74.1 Net including credit for salvage value. | |||
0 I ~ '~4 I V ~ ~ ~ ~ ~ | |||
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. FIGURE DECOMMISSIONING PVNGS SCHEDULE (Single Unit) | |||
YEARS PRE SHUTDOWN CI Pre aration and Anal sis taffin and Trainin Re orts and Licensin POST SHUTDOWN Decontamination Primary Loop Equipment Containment Building | |||
~ . Aux i 1 i ary Bui 1 ding Fuel Building Radioactivitv Removal Primary Loop Equipment Auxiliary Build Equipment | |||
~ | |||
Fuel Building Equipment Radioactive Shi ments Spent Fuel Decontamination Solids Primar y Loop Building Materials Non Radioactive Demolition and Shi ment Containment Building Materials Auxi 1 i ary Bui lding Materials Turbine E Electrical Equipment Turbine Building Materials Cooling Tower J | |||
Backfillin and. Landsca in 0 | |||
o For the non-radioactive portions of the plant the demolition costs are a net charge as the demolition contractor would sell, for his own account, that equipment having a positive salvage value. This was the basis on which the estimate was developed Costing Procedures The principle costing reference is that of NUREG-130, the very complete PWR decommissioning, study developed by the NRC. As this study wa's completed in May 1978 and published shortly thereafter, it is necessary to update the costing to account for economic changes between that date and today. In addition diferences in plant design, site location, a project management approach and energy costs all require additional corrections for the final costs to be appropriate for the PVNGS units. | |||
Those charges previously developed for PVNGS were to a large extent based on the decommisioning of the Elk River reactor - the only major nuclear facility fully dismantled and demolished. A check of this historic data against the updated NUREG-130 provides an independent correlation and con-fidence in the costs developed. | |||
J. N. Hc Farland, Re ort on Re resentative Cost Estimates for Demolition of Structures at a Pressurized Water Reactor Site, N - , repared or Batte e, Pacifsc Northwest La oratory, by McFarland Wrecking Corporation, Seattle WA 98108, September 30, 1976. | |||
i o | |||
Several major corrections were made to the data developed in the NRC report to make the costs applicable to the PVNGS site. These are summarized as follows: | |||
: 1. Labor cost - The labor unit rates have been adjusted to account for escalation between 1978 and 1982. | |||
: 2. Tools, equipment and supplies - Adjusted from 1978 to 1982 with a composite index of steel products, chemical, electrical, and commodities. | |||
: 3. Electrical energy - Use of a current incremental electrical cost for Arizona as compared to the lower "average" cost used in NUREG-130. | |||
: 4. Contr act demolition - Adjusted for increases in construction labor and equipment. | |||
: 5. Waste Disposal - Use of current rates which have increased by more than 400K for disposal charges. In addition, shipping charges are based on a 500 mile shipment (reflecting state/regionalization of disposal sites) and actual current tarriff rates. | |||
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: 6. Licensing - A significant increase in this charge reflecting a view that more preplanning and technical work is necessary for such major demolition both for licensing and project I | |||
management.. | |||
: 7. Size - Related to most of the above items. Corrections were made for the somewhat larger size of the unit and for specific quantities take-off. | |||
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Revision as of 11:46, 29 October 2019
ML17299A678 | |
Person / Time | |
---|---|
Site: | Palo Verde ![]() |
Issue date: | 10/18/1985 |
From: | Van Brunt E ARIZONA PUBLIC SERVICE CO. (FORMERLY ARIZONA NUCLEAR |
To: | |
Shared Package | |
ML17299A677 | List: |
References | |
NUDOCS 8510210136 | |
Download: ML17299A678 (305) | |
Text
UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al., DOCKET NO. STN 50-528 (Palo Verde Nuclear Generating Station, Unit 1)
APPLICATION IN RESPECT OF A SALE AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO October 18, 1985 85i02iai36 ADDCH, 8
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TABLE OF CONTENTS Pacae Relief Requested 1 2 0 Purpose of the Financing Transaction ~ ~ 3 3 ~ Description of the Proposed Sale and Leaseback Financing Transaction . . . . 4 4 ~ Conditions Precedent to the Financing Transaction . . . . . . . . . 6.
- 5. Schedule of the Financing Transaction 6.
7.
Supporting Information .........
Environmental Considerations ......10
~ ~ 7 8
- 8. No Significant Hazards Consideration ..10 9.
PVNGS Unit 1 ~ ~ .. ~... ~....11 Responsibility for Management of
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TABLE OP CONTENTS, Continued EXHIBITS Exhibit Desi nation Descri tion General Information Concerning Public Service Company of New Mexico Attachment A: 1984 Annual Report of Public Service Company of New Mexico and Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1984 B'eneral Information Concerning First National Bank of Boston Th' Attachment A: Affidavit of U. S. Ci tizenship of The First National Bank of Boston Attachment B: Affidavit of U.S. Citizenship of Bank of Boston Corporation Attachment C: 1984 Annual Report of Bank of Boston Corporation.
Final Report of the S.M. Stoller Corporation dated August 3, 1982, entitled "Estimated Cost for Decommissioning Palo Verde Nuclear Generating Station (PVNGS)"
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UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE DOCKET NO. STN 50-528 COMPANY, et al.,
(Palo Verde Nuclear Generating Station, Unit 1)
APPLICATION IH RESPECT OF A SALE AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO Pursuant to Section 103 of the Atomic Energy Act of 1954, as amended, and 10 CFR 50.22 and 50 .54(c)< Arizona Public Service Company (APS), as Project Manager and Operating Agent of Palo Verde Nuclear Generating Station (PVNGS) Units 1, 2 and 3, submits this application, under 10 CFR 2.206, on behalf of Public Service Company of New Mexico (PNM), licensee under Facility Operating License No.
NPF-41, and The First National Bank of Boston, as Owner Trustee under two or more separate grantor trust agreements (hereinafter Owner Trustee) . Accompanying this Application is a Memorandum in Support thereof (the Mexaorandum).
- 1. Relief Requested PNM proposes to refinance its construction financing for PVNGS Unit 1 by entering into two or more sale and leaseback financing transactions relating to all or a portion of PNM's 10.2%
~ undivided ownership interest in Unit 1 and all or a proportionate
s hare of one-third of PNM's 10.2% undivided ownership interest in PVNGS common facilities (said interest in Unit 1 and in the common facilities being hereinafter collectively referred to as the Facilities) .1 The relief requested by this Application is the issu-,
ance of an order (i) authorizing the transfers of the Facilities through the sale and leaseback financing transactions, pursuant to Sections 50 .22 and 50.54(c) of the Commission's regulations (10 CFR 50 .22 and 50 .54(c)), subject to the conditions that:
(a) The rights acquired by the Owner Trustee and any equity investor and any successors and assigns (including any mortgagee or secured party of such Owner Trustee) in and to PVNGS Unit 1 may be exercised only in compliance with and subject to the same requirements and restrictions as would apply to PNM pursuant to the provisions of Facility Operating License No. NPF-41 (the License), the Atomic Energy Act of 1954, as amended (the Act), and the regulations issued by the Commission pursuant to the Act; and (b) Neither the Owner Trustee nor any equity investor nor any of their respective successors or assigns may take possession of any interest in PVNGS Unit 1 prior to either (1) the issuance of a license from the Commission authorizing such possession or (2) the transfer of the License authorizing PNM to possess an interest in PVNGS Unit 1 upon an applica-tion for transfer of such License filed pursuant to 10 CFR 50.80 (b);
- 1. PNM will retain, however, ownership of easements, rights-of-way and certain other real property rights associated with the Facilities, including property referred to under the Internal Revenue Code as "Section 1250 property" (such as the Administration Building). PNM will also retain ownership of the nuclear fuel and electric transmission facilities associated with PVNGS.
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and,(ii) acknowledging that neither the Owner Trustee nor any equity investor nor any of their respective successors and assigns is or shall become a licensee under the License unless and until the Commission shall have issued an amendment of the License authorizing such Owner Trustee, equity investor, successor or assign to take pos-session of an interest in PVNGS Unit l or shall have approved a transfer of PNM's license to such Owner Trustee, equity investor, successor or assign.
- 2. Purpose of the Financing Transaction The proposed sale and leaseback financing transactions will provide benefits to PNM's customers through two channels. First, the net present value of capital costs (and the total nominal costs) will
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be reduced by the transfer of tax benefits and by the recapitaliza-tion of the plant financing with greater debt leverage. Second, the revenue requirements associated with PNM's capital costs in PVNG's Unit l will be levelized over the life of the Unit.
Because the lessors in the proposed sale and leaseback transactions will recapitalize the Unit with greater debt leverage, the required lease payments represent a lower cost of capital than would PNM's composite cost of capital. Also, PNM's tax situation is such that it cannot take full advantage of tax benef its at the present time. The sale will transfer the benefits of tax depreciation to such lessors.
The leveling of revenue requirements over time yields several benef its. Under conventional utility regulation, carrying charges are determined by the asset's net book value which declines over time as the asset is depreciated. This produces so-called "front-end" loading the familiar situation in which the stream of revenue requirements falls over time while the actual value of the plant output rises over time. Front-end loading is eliminated with the proposed sale and leaseback transaction because a fixed lease payment replaces the conventional "high front-end" revenue require-ments stream, thus benefitting PNM's ratepayers and insulating them from potential "rate shock".
3 . Description of the Proposed Sale and Leaseback Financing Transaction PNM proposes to sell to grantor trusts, the beneficiaries of which will be institutional equity investors, the Facilities, including without limitation PNM's 10.2% Generation Entitlement Share> in PVNGS Unit 1. Such investors will enter into one or more trust agreements with the Owner Trustee who will take and hold title to the Facilities sold by PNM. The Owner Trustee will in turn lease the Facilities back to PNM for a term of approximately 28-1/2 years
- 2. "Generation Entitlement Share" is defined in Section 3.28 of the Arizona Nuclear Power Project Participation Agreement as amended (see Appendix D attached to the Memorandum) as: "The percentage entitle-ment of each Participant to the Net Energy Generation and to the Available Generating Capability..."
0 for a stipulated basic rent. (See Section 4 of the Memorandum for a more complete description of certain significant terms of the leases-I Under the ANPP Participation Agreement [see Appendices D and E to the Memorandum) which governs the ownership and operation of Unit =1, PNM will be empowered with respect to the Facilities to be and act as the "Participant" with full power and authority, to the exclusion of the Owner Trustee and/or the equity investors, to exer-cise all the rights and perform all the duties and responsibilities under such Agreement. The leases will confirm this authorization to PNM. The Owner Trustee, as lessor under the leases, will be subject only to typical f inancing risks and not to operational risks or responsibilities.
Sale and leaseback financing is a recognized and accepted mechanism that has been used for many years by a number of commercial institutions involving a wide variety of property types. APS and a number of other electric utilities have used this mechanism to finance or refinance their investments in non-nucl'ear generating facilities. In the past year PNM refinanced its investment in one of its transmission lines, known as the Eastern Interconnection Project (EIP), using sale and leaseback documentation similar to that pro-posed for refinancing its interest in PVNGS Unit 1. When used by electric utilities, sale and leaseback transactions have been subjected to review and approval of state and/or federal regulatory
agencies. [See, for example, Appendices A and B attached to the Memorandum.l While this will be the first occasion of the use,of a sale and leaseback transaction in financing a nuclear power facility, the secured financing of the nuclear fuel used in such facilities utiliz-ing a lease format is not unique.
- 4. Conditions Precedent to the Financing Transaction The proposed financing transaction is subject to the fol-lowing conditions precedent, in addition to others commonly associ-ated with any financial transaction of this nature:
4.1 The approval of the transaction by the New Mexico Public Service Commission as required by the laws of the State of New Mexico, such approval to be in form and substance satisfactory to all parties to such transaction.
4.2 The issuance of a declaratory order by the Federal Energy Regulatory Commissi'on (PERC), satisfactory in form and sub-stance to all parties to the transaction, ruling that the equity investors and the Owner Trustee will not, as a result of their hold-ing title to the Leased Interests, become "public utilities" as def ined in section 203 (a) of the Federal Power Act.
4.3 The actions of the Commission as applied for in this Application.
4.4 Ownership and operation of PVNGS Unit 1, together with Units 2 and 3, is governed by the Arizona Nuclear Power Project
Participation Agreement, as amended. [See Appendices D and E attached to the Memorandum.l The ANPP Administrative Committee cre-ated by such Agreement will be required to make a determination that the conditions to the proposed sale and leaseback transaction speci-fied in proposed Amendment No. 10 to such Participation Agreement have been met.
- 5. Schedule of the Financing Transaction 5.1 The viability of the proposed financing transaction hinges upon its consummation on or before December 31, 1985. To meet this date it is planned that preliminary conditional commitments will be obtained from the equity investors and the Owner Trustee on or about October 22, 1985. Thereafter, it is expected that on or about November 15, 1985, approval of the proposed sale and leaseback from the New Mexico Public Service Commission and the requisite order from FERC will be obtained. Finally, it is very desirable that the clos-ing of the sale and leaseback transactions take place on or about December 18, 1985. This is necessary to provide the equity investors with the 1985 available tax benefits without which the proposed transactions will fail to close. A December 18 closing will ensure that the associated public debt offering can be sold in the'ublic market prior to the Christmas holidays.
5 .2 To achieve this schedule it will be necessary that the Commission issue its final order not later than November 20< 1985, authorizing the transfers of the Facilities by PNM to the Owner
Trustee and by the Owner Trustee back to PNM. (See Section 1 hereof . l
- 6. Supporting Information 6.1 The general information respecting applicant PNM required by 10 CFR 50.33 (a) through (d) is provided by Exhibit A attached to this Application.
6.2 The general information respecting applicant Owner Trustee required by 10 CFR 50.33 (a) through (d) is provided, as appropriate, by Exhibit B attached to this Application.
6 .3 The total estimated annual operating costs (operation and maintenance expense, including fuel expense) for each of the first five years of operation of PVNGS Unit 1 and PNM's share of such costs are tabulated below:
Total Estimated PNM's Share of Year Operating Costs Operating Costs (in thousands)
$ 122 i851 12,580 1986 1987 1988 ill i729 104 i 514
$
lli566 10,888 1989 128 i 490 13,405 1990 133 i652 13,976 6 .4 The estimates set forth in Section 6.3 above are based on the following assumptions: (a) with respect to operation and maintenance expense (excluding fuel expense and using ANPP Forecast No. 18), (i) the inclusion in common costs of common facilities and
water reclamation facilities, (ii) inclusion of only Unit 1's share of common costs with even allocation across all units (using APS's date of firm power operation for Unit 2), (iii) loads have been included (payroll, with the exception of taxes, materials and service and outside services), and insurance and administrative and general expense have been excluded, (iv) the projection of all dollars at year's cost (escalation at 6% per year), and (v). the exclusion of PNM legal fees, replacement power insurance costs and other PNM in-house costs; and (b) with respect to fuel expense (using the June 1985 nuclear fuel financial forcast), (i) the subtracting out of Western Nuclear's cash flow for 1985, (ii) the assignment to Unit 1 of one third of each of U308 cash flows and conversion cash flows, (iii) the use of the ratio of the current SWU price projection to the old SWU price projection times Unit 1 enrichment cash flows to calculate enrichment, (iv) no change in either fabrication or spent fuel dis-posal fees and (v) recalculation of use tax assuming 5% of U308 costs instead of 5% of total fuel assembly costs.
6.5 As Exhibit C attached to this Application indicates, the cost of decommissioning PVNGS Unit 1 using the DECON alternative (as described in the notice of proposed rulemaking published in the Federal Register on February 11, 1985, at pages 23025 ~et e .) is
$ 79 million (expressed in 1982 dollars). PNM is now and, pursuant to the proposed leases, will continue to be obligated to pay 10.2% of the costs of decommissioning PVNGS Unit 1.
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- 7. Environmental Considerations The proposed conveyances of the Facilities to the Owner Trustee and the leasebacks of the Facilities to PNM by the Owner Trustee do not involve any design or physical change to PVNGS Unit 1, any change in the transmission or other facilities associated with PVNGS Unit 1, any change in types or amounts of effluents from PVNGS Unit 1, any change in the potential for accidental releases from PVNGS Unit 1 or any change in the authorized power level of PVNGS Unit l. Accordingly, the grant of the relief requested by this Application does not present an unreviewed environmental impact.
Pursuant to 10 CFR 51 .5(d)(4), no environmental impact statement, negative declaration, or environmental impact appraisal need be pre-
- 8. No Significant Hazards Consideration The consummation of the proposed sale and leaseback financ-ing transactions will not involve any increase in the probability or consequences of an accident previously evaluated, or create the pos-sibility of a new or different kind of accident from any accident previously evaluated, or involve any reduction in a margin of safety. Accordingly, the consummation of the transfers of the Facilities as contemplated by the proposed sale and leaseback financ-ing transactions does not involve a "significant hazards consideration" within the meaning of that phrase as defined in 10 CFR 50.92.
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- 9. Responsibility for Management of PVNGS Unit 1 9.1 The consummation of the proposed sale and leaseback financing transactions will not result in any change in the responsi-bilities, obligations or authorities of APS as licensee under the License authorized to operate and maintain PVNGS Unit 1, nor as Operating Agent under the ANPP Participation Agreement.
9.2 Under the terms of the proposed leases and pursuant to the proposed amendment of the ANPP Participation Agreement, PNM shall continue throughout the term of the leases to be a Participant under the ANPP Participation Agreement, entitled to a 10.2% Generation Entitlement Share of the power and energy generated by PVNGS Unit 1, entitled to a full vote on all Unit 1 business and obligated to pay 10 .2% of the costs of operating, maintaining and decomissioning such Unit.
0 9.3 It is not necessary to issue a license to the Owner Trustee and/or equity investors since only APS, as Operating Agent, and the other Unit 1 licensees, including PNM, are able to insure that Unit 1's operation is consistent with the Commission's licensing responsibilities. APS and the other Unit 1 licensees alone have con-trol of and responsibility for the Operating Agent with respect to the operation and maintenance of Unit l. The ownership rights of the Owner Trustee and/or the equity investors are far too limited in this regard to require a license, as the Memorandum makes abundantly clear. The Owner Trustee and/or the equity investors will have (i) no ability to restrict or inhibit compl'iance with the security,
~ I O.
safety or other regulations of the Commission, (ii) no capacity to control the use of Unit 1 nuclear fuel or to dispose of special nuclear material generated by Unit 1, and (iii) no right to use or direct the use of the Facilities. Although legal title to the Facilities will reside with the Owner Trustee, the current regime of control, supervision and responsibility is unaltered by the proposed transaction. APS is and will remain responsible to the Commission for the proper operation and maintenance of Unit l.
~ I WHEREFORE, APS requests on behalf of PNN and the Owner Trustee that the Commission grant the relief requested in Sectioq 1 hereof or in such other form and/or subject to conditions in addition to those stated in such Section as the Commission may deem appropriate.
Respectf ully submitted, ARIZONA PUBLIC SERVICE COMPANY Edwin E. Van Brunt, Jr.
Executive Vice President-ANPP Dated s October= 18 < 1985
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STATE OF ARIZONA )
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COUNTY OF MARICOPA)
I, Donald B. Karner, represent that I am Assistant Vice President, Nuclear Production of Arizona Nuclear Power Project, that the foregoing document has been signed. by me on behalf of Arizona Public Service Company with full authority to do so, that I have read such document and know its contents, and that to the best of my knowledge and belief, the statements made therein are true.
Donald B. Karner Sworn to before me this /7 day of 0 ~7 , 1985.
",. )/" Notary Public
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Ny CommIsslon Expires Jan. 23, 498T
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UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al, DOCKET NO STN 50-528 (Palo Verde Nuclear Generating Station, Unit l)
EXHIBIT A TO APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO GENERAL INFORMATION CONCERNING PUBLIC SERVICE COMPANY OF NEW. MEXICO
O.
0, General Information Concerning Public Service Company of New Mexico
~ (a) Name of applicant:
Public Service Company of New Mexico ("PNM")
(b) Address of applicant:
Alvarado Square Albuquerque, New Mexico 87158 (c) Description of business of applicant:
PNM is a public utility engaged principally in the generation, transmission, distribution and sale of electricity and, since January 28, 1985, in the gathering, transmission, distribution and sale of natural gas within the State of New Mexico. PNM also owns facilities for the pumping, storage, transmission, distribution and sale of water. In addition, PNM, through its subsidiaries, is engaged in a program of. diversification into non-utility areas.
(d) (1) Not applicable.
(d) "(2) Not. applicable.
~ (d) (3) (i) State of incorporation and principal location:
PNN is an investor-owned corporation organized and existing under and by virtue of the laws of the State of New Mexico.
Its principal offices are .in Albuquerque, New Mexico. PNM pro-vides electric service to (1) a large area of north central New Mexico, including the cities of Albuquerque, Belen, Bernalillo, Santa Fe and Las Vegas, (2) Deming in southwestern New Mexico and (3) Clayton in northeastern New Mexico. PNM also provides wholesale electric service to the the City of Gallup, the City of Farmington, Plains Electric Generation & Transmission Cooperative, Inc., and Texas-New Mexico Power Company.
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(d) (3) (ii) Names of directors and principal of ficers:
Directors of Public Service Company of New Mexico
. J.P., Bundrant President, Electric Operations Public Service Company of New Mexico
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A.B. Collins, Jr.
President Reddy Communications, Inc.
Albuquerque, NM J.D. Geist Chairman and President Public Service Company of New Mexico C.E. Leyendecker Chairman of the 'Board and Chief Executive Officer United New Mexico Bank at Mimbres Valley Deming< NM A.G. Ortega Attorney at Law Ortega & Snead, P.A.
Alburquerque, NM R.R. Rehder Professor of Management Robert 0. Anderson Graduate School of Management University of New Mexico Albuquerque, NM R.B'., Rountree Senior Vice President Public Service Company of New Mexico R.H. Stephens President Stephens-Irish Agency, Inc.
Las Vegas, NM E. R Mood Vice President and General Manager Wood 5; Hill Corporation Santa Fe, NM H.L. Galles, Jr.
Director Emeritus Chairman of the Board Galles Chevrolet Company Albuquerque, NM Principal Officers of Public Service Company of New Mexico PNM CORPORATE A-2
J-D. Geist Chairman and President J. B. Mulcock, Jr.
Senior Vice President<
Corporate Affairs and Secretary A-J- Robison Senior Vice President and Chief Financial Officer R.B. Rountree Senior Vice President M.A. Clifton Vice President, Financial Planning B.D. Lackey Vice. President and Corporate Controller J.K. Murphy Vice President, Regulatory and Business Policy W.C'. Mygant Vice- President, Corporate Services P.J.. Archibeck Treasurer and Assistant Secretary H.L. Hitchins, Jr.
Assistant Secretary and Assistant Treasurer M.J. Marzec Assistant Treasurer M'. Mason-Plunkett Assistant Secretary PNM ELECTRIC J.P. Bundrant President and Chief Operating Officer A-3
C.D. Bedford Senior Vice President, Planning, Finance and Administration W.M. Eglinton Senior Vice President, Operations J.L. Wilkins Senior Vice President, Power Supply J.L. Godwin Vice President, Power Production and Manager, San Juan Station W.M. Hicks, Jr.
Vice, President, Energy Management R.A. Lake Vice President, Operations Services M.A. McDonald Vice President, Human Resources and Support Service R.P. Mershon Vice President,,
Regional Division Operations D.J. Morse Vice President, Albuquerque Division Operations R.M. Wilson Controller, Electric Operations and Assistant Secretary GAS COMPANY OP NEW MEXICO J.T. Ackerman President and Chief Operating Officer Gas Operations A-4
po O.L. Slaughter Senior Vice President and Executive Assistant J J Ruiz District Vice President W.J. Real District Vice President T.D. Rister District Vice President D.L. Pickel District Vice President T.A. Coers District Vice President, Transmission G.D. Mische, District Vice President, Transmission M.H. Lambert Vice President, Pipel ine Operations J.C. Wyman Vice President, Gas Supply
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D.W.'. McPearin Vice President, Controller and Assistant Secretary D.J. Davis Vice President and Chief Engineer, Distribution E.R. Corliss
'Vice President and Chief Engineer, Transmission T.H. Morse Vice President Distribution Operations Each of the directors and principal officers zen of the United States of America.
of PNM is a citi-(d) (3) (iii) Public Service Company of New Mexico is not owned, controlled, or dominated by an alien, a foreign corporation, or a foreign government.
A-5
(d) (4) Public Service Company of New Mexico is not acting as agent or representative of another person in respect of this application.
(e) See the Application to which this document is attached as Exhibit A.
(f) In accordance with 10 CFR 50, Appendix C, a copy of Public Service Company of New Mexico's 1984 Annual Report and its Annual Report on Form 10-K f or the f iscal year ended December 31, 1984, are attached hereto .as Attachment A.
(g) Not applicable.
(h) Not applicable.
(i) The names and addresses of regulatory agencies which have juris-diction over Public Service Company of New Mexico's rates and services are:
New Mexico Public Service Commission Marian Hall 224 East Palace Avenue Santa Fe, New Mexico 87503 Federal Energy Regulatory Commission Washington, D.C. 20426 News publications which circulate in the area in which the facility is located are:
The Arizona Republic 120 East Van Buren Phoenix, Arizona 85004 The Phoenix Gazette 120 East Van Buren Phoenix, Arizona 85004 Buckeye Valley News P.O. Box 217 Buckeye,- Arizona 85326 News publications which circulate in Public Service Company of New Mexico's service area include the following:
Las Vegas Daily Optic Las Vegas, New Mexico 87701 The New Mexican, Inc.
Post Office Box 2048 Santa Fe, New Mexico 87501 A-6
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Los Alamos Monitor Post Office Box 899 Los Alamos, New Mexico 87544 Albuquerque Journal Albuquerque Publishing Company Post Office Drawer J-T Albuquerque, New Mexico 87103 Gallup Daily Independent Post Office Box 1210 Gallup, New Mexico 87301 (j) Not applicable.
A-7
0, UNITED STATES OF AMERICA NUCLEAR REGULATORY COHMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al, DOCKET NO STN 50-528 Verde Nuclear
'Palo Generating Station, Unit 1)
ATTACHMENT A TO EXHIBIT A TO APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO 1984 ANNUAL REPORT OF PUBLIC SERVICE COMPANY OF NEW MEXICO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1984
~ "A fine wind is blowing the new direction of time" D H Lawrence PNM ANNUAL REPORT 1984
Changing, Yet Unchanged The Southwest is a land of sharp contrasts-modern cities rising from timeless deserts, multistory granite and glass office buildings standing within sight of adobe Indian villages.
Laura Gilpin's "Storm From La Bajada Hill, New Mexico," on the cover of this year's annual report, reveals a dramatic landscape. Since the Gilpin ~ i photograph was taken in 1946, a modern interstate has been built across La Bajada's weather-beaten, high mountain desert. Wise travelers have a healthy respect for the storms that often rack the otherwise serene hill.
As you turn the pages of the report you'l see other vintage photographs that convey the ageless quality of New Mexico. They are accompanied by quotes from well-known authors and others whose work has been deeply 0',
influenced by experiences in the Southwest.
PNM has also been influenced by the natural beauty and the rich cultural heritage of New Mexico and the Southwest. As we'e grown, as we'e changed to meet the challenges and take advantage of the opportunities of the 1980s, we'e retained our close affinity for the land and for the people we serve.
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i "STORM FROM LA BAJADA HILL, NEW MEXICO," Laura Gilptn 1946 1985 Amon Carter 1
Table of Contents Chairman's Letter Corporate Overview Electric and Water UtilityActivities Broadening Our Base 15 Financial Data and Consolidated Financial Statements 19 Stockholder Information 37.
Directors and Officers 38 Regional Electric System Map 40 Features Gas Company of New Mexico Eastern Interconnection Project Montana de Fibra 17 Financial Highlights 1984 1983 X Change Operating revenues S 445,328,000 S 397,474,000 12.0 0 ting expenses S 298,834,000 S 261,227,000 14.4
~ ing income S 146,494,000 S 136,247,000 7.5 rnings S 132,840,000 S 140,519,000 (5.5)
Net earnings applicable to common stock S 108,850,000 S 116,332,000 (6.4)
Return on average common equity 12.5M 14.3X (12.6)
Average number of common shares outstanding 35,011,000 32,956,000 6.2 Earnings per common share S 3.11 S 3.53 (11.9)
~ Dividends paid per common share S 2.85 S 2.81 1.4 Book value per common share at year-end S 25.28 S 25.20 0.3 Utility construction expenditures S 278,205,000 S 261,964,000 6.2
'2.5
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Gross investment in utility property S2,405,961,000 S2,139329,000 Kilowatt-hour sales 6,317,338,000 6,105,201,000 3.5 Number of electric customers served at year-end 243,864 233,256 4.5 Average kWhr usage per residential customer 6,022 5,915 1.8 System peak demand (MW) 976 998 (2.2)
Number of PNM employees 2,822 2,845 (0.8)
Number of common shareholders 66,855 70,210 (4.8)
Chairman's Letter The midpoint of this decade is pivotal gas customers to its service community for the Public Service Company of and should realize approximately 8400 New Mexico. million in new revenues during 1985.
For years we have been building, Late in the year, the Palo Verde endowing New Mexico and the South- Nuclear Generating Station, in which ~4p~%
west with the energy resources needed PNM holds a 10.2 percent interest, to carry vigorous economic growth received an operating license from the well into the next century. That long- Nuclear Regulatory Commission for term construction strategy is now Unit I of the project. Fuel loading in approaching completion, and we have Unit I was completed on January 1 I, begun to focus on new services, fresh 1985 and low power operation of the approaches to marketing and invest- unit is underway. The license allows ments that help spur the growth of our for possible full power operation later state and region. in 1985.
Such a period of transition demands In December, the New Mexico Public innovation along with cautious Service Commission approved a new management of the Company's re- ratemakmg methodology called Inven-sources. Change is inevitable, a positive tory of Capacity. This important response to needs and opportunities. ratemaking concept successfully deals Yet a critical management function is with the problem of uncommitted to recognize what should not change- capacity while protecting the interests 1970s, which radically altered the way the values, policies and traditions that of shareholders and shielding our we and all Americans viewed energy.
give a corporation its character and customers from the impact of sudden We recognized at the time our
durability the stable business base rate increases. responsibility to ensure that the ~
that makes it possible to innovate Other 1984 highlights: the under nomic potential of New Mexico .
without undue risk to shareholders or budget and ahead of schedule com- the Southwest must never be chec ed customers. pletion of our Eastern Interconnection by insufficient supplies of energy. We With this in mind, I think it appro- Project, a 216-mile transmission line saw clearly that our sources of fuel priate to report this year not only on which links us to eastern markets must be cost efficient, dependable the changes underway, but also on and allows immediate bulk power sales and independent of external manipu- ~
those qualities of PNM which we to Southwestern Public Service Com- lation. As a result, PNM launched an recognize as changeless.
pany; completion also under budget intensive construction program to
and ahead of schedule of Montana provide a balanced coal and nuclear A Year of Opportunity de Fibra, a $ 67 million medium density power base.
For PNM, this has been an exciting fiberboard facility in which our sub- Construction activity is now de-year. We entered 1984 faced with sidiary, Meadows Resources, Inc., holds creasing. The San Juan Generating enormous challenges. The events of a primary interest; and finally, the Station, particularly San Juan Unit 4, the past twelve months have proven implementation of a major rate relief which came on-line in 1982, is that those challenges were, in fact, package granted by the Commission to recognized as one of the most reliable opportunities. our electric utility. and efficient coal-fired generating The year brought settlement of a Much of this good news is the units in the nation. At Palo Verde landmark antitrust lawsuit in which outgrowth of years of strategic planning and careful management.
Nuclear Generating Station, Unit I 4 PNM was an active plaintiff. The should be generating at full power settlement led to PNM's acquisition, later in 1985. Palo Verde Units 2 and 3 early in 1985, of the Gas Company of Marshaling of Resources are on schedule and should be in New Mexico and other New Mexico Our long-term commitment to utility operation by 1987. The ample and utility assets of the Dallas-based construction began more than a decade dependable energy supplies provided Southern Union Company. With the ago, triggered in part by two by these facilities represent a major ~
acquisition, PNM has added 303,000 phenomena. The first was the extra- resource for development in New Mex-ordinary growth rate of the 1960s, at ico and throughout the Southwe times approaching 10 percent annually. powerful attraction for new indi The second was the oil crisis of the and businesses.
allowing capital costs to earn a fair are solid principles of Company practice return and to be recovered in the that do not change.
future. Among those principles is our com-mitment to strong leadership. The Broadening Our Base recent appointment of John Bundrant hange is PNM is now a diversiTied business. as President and Chief Operating inevitable, family, organized to accomplish two Officer of our Electric Operations and a positive complementary tasks. Our electric and John Ackerman as President and Chief response to needs and gas utility divisions serve as New -Operating Officer of our Gas Operations Mexico's primary energy resources. reaffirms that commitment. These new opportunities. fet a critical Our investment group, headed by appointments clearly separate our function is
~ management to recognize what should Meadows Resources, Inc., enhances corporate profitabflity while it spreads electric utility from our gas operations and assure a strengthening of active not change gg our investment risk and creates eco- competition between the two utilities.
nomic opportunities in New Mexico We seek only the best employees.
and the Southwest. The early completion of major projects Our investment subsidiary, Meadows, such as Eastern Interconnection accounted for 14 percent of our net Project and Montana de Fibra at less earnings applicable to common stock than projected cost is a testament to for the year. Meadows has developed a their skill and dedication.
Marketing: The Future Challenge broad base of interests with invest- A tough but fair regulatory atmos-Added capacity brings with it a ments in forest products, minerals, phere has yielded rate relief $ 38.5 s 'th necessity for new emphasis on market-the Eastern Interconnection complete, PNM is now linked land and new technologies.
is expected to produce as much as 88 million in relief became available last Montana de Fibra, completed in 1984, July with another $7.5 million made available on February 1, 1985 and power systems to the east. We are million square feet of medium density made possible ratemaking innovations also seeking markets to the north and fiberboard annually. It has also gen- such as Inventory of Capacity.
in California. The early results of these erated 200 new jobs in an economically Finally, we are firmly committed to
. our customers, our state and our region.
efforts are notable. The Company has depressed area of New Mexico.
in-hand contracts to sell nearly three- Meadows is tapping into South- Our enduring goals are to help preserve
~ western real estate markets through an irreplaceable way of life and to quarters of our capacity in excess of that demanded by our New Mexico its active partnership with Bellamah enhance it through new opportunities.
customers from 1985 through 1987. Associates, Ltd., a New Mexico-based Our shareholders, employees and An important element of our mar- land development firm. The success of customers recognize the importance keting program is the recognition that, real estate activities has far exceeded of these goals and commitments. The by promoting the success of our cus- our expectations, with total sales during PNM management and directors thank
~ 1984 amounting to $ 83.0 million. them all for their confidence and tomers, we ensure our own success.
We are listening more closely than The Meadows venture capital port- support.
ever to what our customers are telling folio includes investments in gas lasers us about their energy needs. and other exciting technologies. Only Our marketing program is gaining about 4 percent of Meadows'ssets are dedicated to venture investments, y momentum, but to protect our share-holders and customers against the but we expect good returns.
possible negative impact of uncom- J. D. Geist Changing, Yet Unchanged mitted capacity, we have embraced Chairman and President Inventory of Capacity. Inventorying These key events and accomplish-protects customers from "stairstep" ments of 1984 and early 1985 represent major milestones in the Company's g rate increases by holding uncommitted capacity out of the rate base until it is strategic plan for the 1980s and beyond.
- d. At the same time, this new But underlying the developments that ing concept recognizes the I have briefly described, which have ate interests of shareholders by accelerated the evolution of PNM, there
"The wind lay upon me. The monoliths were there in the long light, standing cleanly apart from time."
N, Scott Momaday O.
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"NAVAJOCHURCH NEAR FORT WINGATE (New Mexico)," John K. Hillere, Circe 1880. Albumen Print 0
Corporate Overview after eliminating a nonrecurring gain PNM, the Commission staff and other of $ 24.1 million, in 1983, on the sale of parties that established a ratemaking the equity interest in a trust which methodology called "Inventory of Ca-held certain coal leases. pacity." This methodology places new Earnings per share of common stock generating facilities into the rate base were $ 3.11 in 1984. The average number gradually. Inventorying protects share-of shares outstanding was 35.0 million, holder investment in new generating up 6.2 percent from the 33.0 million plant, while shielding customers from shares outstanding in 1983. Return on the sudden rate impacts that would average common equity was 12.5 otherwise occur if a new plant were percent. put into the rate base all at once.
Paced with the challenge of placing Regulatory Environment new, capital intensive plant on-line During 1984, PNM was successful wle minimizing the impact on custo-in negotiating settlements of several mers, the Company and the Commission important cases before the New Mexico began, in 1982, to study this new Public Service Commission (Commis- ratemaking concept, which places sion). PNM believes that vigorous certain portions of uncommitted plant negotiation in good faith better serves capacity into "inventory." In 1983 the all interests the shareholder's, the Commission established a task force customer's and the public's than does representing the Commission staff, In the decades ahead, the Public PNM, the Attorney General's staff and prolonged and adversarial litigation.
Service Company of New Mexico three customer groups. This task force 0 anticipates a continuing popu- Rate Filings was charged with examining the in-hift to the Southwestern Sunbelt. ventorying concept and providing a A and of rich cultural heritage and In 1984, the Commission approved recommendation on its application as the stipulated settlement of a rate a ratemaking method.
burgeoning economic development, the Southwest will require a steady and relief request filed in August 1983, the Inventorying defers certain costs Company's first electric rate filing since associated with uncommitted capacity reliable supply of energy to match this
~ October 1981. The April 1984 settle- above a 20 percent reserve margin. It expansion. As New Mexico and the ment allowed PNM's electric utility to also defers some of the cash return on Southwest region grow, the Com-collect approximately $ 300 million in shareholders'nvestment and accrues pany is committed to meet increasing
customer demand with its electric, annualized revenues (excluding fuel a<(ustment clause revenues). The rate non-cash earnings while the plant is in inventory. Such deferred carrying gas, and water utilities.
relief amounted to $ 46 million to be costs will be recovered from future Recognizing its obligation to promote 0 implemented in two steps. The first customers when the inventoried plant the success of its customers as well as increase, of $ 38.5 million, was imple- is placed into the rate base.
its shareholders, PNM plays a unique mented in July 1984. An additional Inventorying includes other cost-role in the development of the region.
increase of $ 7.5 mBlion was effective recovery methods. Revenues from bulk PNM believes in the importance of in February 1985. sales of inventoried capacity will be beneficial traditions of development, The bulk of the overall rate adjust- used first to pay fuel costs and other of goals shared with the citizens it
~ ment reflects inclusion in the rate variable operating costs, then to pay serves, and of a special concern for base of PNM's portion of construction up to half of the depreciation and the land and the resources with which costs for the fourth and final unit at property tax costs. Any additional it is entrusted.
the Company's coal-fired San Juan revenues will be allocated to these Generating Station (San Juan), located costs and carrying charges, which 1984 Earnings in northwest New Mexico. would otherwise be paid by future Careful management of Company customers.
~ resources is reflected in revenues and Inventory of Capacity The plan also contains a cap which ea s. Net earnings for 1984 totaled limits the cost that customers will The Commission also approved in nillion. This represented a 14 pay in the future.
December 1984 a stipulation between
- p. increase in earnings over 1983,
"Wherever humanity has made the hardest of all starts and lifteditself out of mere brutality, is a sacred spot."
==-W)lie Cather I
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"CLIFF PERCHED ACOMA," Edward S. Curtis. 1904, Glass Plate Negative
$ 164 million of bank lines of credit PNM purchased Southern Union's and revolving credit arrangements. New Mexico gas utility assets for net During the year, four rating agencies book value (less assumed liabilities) reviewed the Company's securities. of approximately $ 224.3 million, with Standard & Poor's Corp. and Fitch Southern Union to receive $ 172.8 mil-Securities Transactions Investors Service, Inc. reaffirmed lion. The $ 51.5 million difference Bonds issued in 1984 were comprised their ratings. Duff and Phelps, Inc. represents Southern Union's settlement of first mortgage bonds and pollution removed the Company from its credit- of the suit with all parties, including control revenue bonds. In August, watch list, maintaining its prior rating. PNM. As part of the settlement, PNM PNM sold $ 65 million of its First Moody's Investors Service lowered funded $ 15.6 million, in cash and by Mortgage Bonds, 13 1/8% Series due its rating on the Company's first issuing a note for $ 20 million, of the 1994. Proceeds were applied to reduce mortgage bonds and secured pollution total $ 51.5 million settlement amount
~ short-term debt. In September, approx- control revenue bonds from Al to A2. to the other plaintiffs. The remaining imately $ 77 million of first mortgage Unsecured pollution control revenue $ 15.9 million of the settlement, less bonds was issued to secure PNM's bond ratings have been lowered from expenses, will be refunded to PNM's guarantee of an equal amount of 5.9% A2 to A3, with preferred stock ratings electric customers by PNM.
Pollution Control Revenue Refunding reduced from a2 to a3. Customers will benefit from direct refunds made as part of the settlement
~ Bonds, Series 1977 due 2007, issued and by PNM negotiations, made pos-by the City of Farmington, New Mexico.
The refunding bonds were issued in sible through the acquisition, for lower 1977 to provide funds to pay two prior gas prices at the wellhead.
issues of pollution control revenue bonds which matured October 1, 1984. Planning for the Future: New Mexico ecember, a total of $ 38.5 million Generating Station
~ tion control revenue bonds PNM is considering a project with old in two series through the extraordinary potential for serving new Maricopa County, Arizona Pollution markets while contributing to the Control Corporation. The bonds were quality of life in the region. In August, issued to defray a portion of cost to the Company entered into an agreement PNM of certain pollution control facB-
~ ities associated with the Palo Verde in principle with the Navajo Nation, General Electric Company and Bechtel Nuclear Generating Station (Palo Verde) Power Corporation to explore the Units 1, 2, and 3. Of the $ 38.5 million, possibility of jointly building and op-
$ 23 million was Annual Tender Bonds erating a major regional power project maturing in 2009 which were sold in a in New Mexico. Participants will be
~ public offering and secured by the evaluating markets, design, fuel sources Company's first mortgage bonds, and and financing to determine whether
$ 15.5 million was in a separate series the project would be economically PNM Acquires Gas Company of New sold as a private placement on an viable in the 1990s.
Mexico unsecured basis. The proposed coal-fired plant, New Approximately $ 48 million of new Among the most significant develop- Mexico Generating Station, would not equity capital was raised through the ments in PNM's history is the recent be designed as generating capacity for Company's special stock plans through- substantial broadening of its utility PNM's New Mexico electric customers, out the year. About 2.2 million shares commitment. In January 1985, PNM but would position the Company to of PNM common stock were issued completed the acquisition of Gas respond to growing regional power through such plans, including the Company of New Mexico (GCNM) from . needs. The project would complement Company's Dividend Reinvestment the Texas-based Southern Union electric operations with associated new Plan. Company (Southern Union) as partial
~ As of December 31, 1984, on a settlement of an antitrust suit. With transmission lines and facilities that would enhance the Company's abBity c lidated basis, commercial paper the acquisition PNM anticipates that to market and deliver power.
rt-term notes totaling $ 30.3 total utility revenues will nearly double had been borrowed under PNM's in 1985.
"Itis the same now, as a thousand years ago once you overlook the cities:
The desert begins just beyond those lights it crouches."
Keith Wilson p
4 "CHURCH BUTTRESS, RANCHOS DE TAOS CHURCH," Paul Strand, 1932, Silver Print
Gas Company of New Mexico Attorney Gene Gallegos argued one of technicality and a new trial ordered.
the strongest cases of his career at an Conoco and Consolidated Oil and Gas, altitude of 35,000 feet. In 1981, chance also defendants, then settled, bringing placed the Santa Fe lawyer in an airline the settlement total to 870.3 million for seat beside Al Robison, PNM's Vice PNM and the other plaintiffs.
President of Finance. It was a meeting By the fall of 1983, all defendants with far-reaching consequences for except Southern Union had settled. With hundreds of thousands of New Mexico a second trial scheduled for the spring gas and electric customers, for PNM of 1984, settlement negotiations with and, ultimately, for PNM shareholders. Southern Union were conducted over a Two years earlier, a group of New period of weeks. When these negotiations Mexico school teachers had hired failed, Sherman G. Finesilver, Chief Gallegos to challenge natural gas pricing Judge of the United States District Court practices in court. Gallegos believed he for the District of Colorado, ordered top could make a credible antitrust price- officials of Southern Union and PNM to fixing case against, Southern Union Denver for a face-to-face talk.
Company, the Dallas-based owner of the Only a few days before the case was Gas Company of New Mexico, and slated for trial, a series of around-the-several major natural gas producers and clock discussions was held. Terms of a suppliers. An antitrust lawsuit was filed settlement were worked out, including on behalf of residential gas consumers an understanding that Southern Union purchasing natural gas from GCNM, would sell its New Mexico gas utility Certain agencies of the State of New assets to PNM.
Mexico, all large volume purchasers of The residential plaintiffs had wanted natural gas, joined the lawsuit. for several months to bring ownership The battle dragged on for 23 months and control of the gas utility "home to tluough depositions and hearings. Then, New Mexico." Many months before, on an east-bound airliner, Gallegos found Gallegos had suggested to PNM oflicials an "attentive ear" in Robison, and laid that acquisition of GCNM by PNM out the facts of his case. would be of value to New Mexico and "As I listened, I realized PNM needed all gas consumers in the state. After to look at this case very, very carefully," careful investigation of the gas utility says Robison. business, PNM became convinced that Some of PNM's generating plants were the purchase was in the best interest of fired by natural gas. If allegations of New Mexico, residential gas customers price fixing were true, PNM was paying and the corporation and agreed to the too much for its gas and, worse, passing settlement. For PNM, the settlement the Iugher costs along to its own electric increases total Company assets, customers. broadens its earnings base and should When Robison returned to Albuquer- improve cash flow.
que, he discussed the matter with Jerry The settlement benefits New Mexicans Geist, PNM's President, who authorized in a variety of ways. It wBI provide a further investigation. A few weeks millions of dollars in refunds to utflity later, PNM joined the suit on the side of customers. And along with bringing the residential gas consumers. control of the state's gas utility back to Shortly after PNM entered the case, New Mexico, it may bring lower gas two defendants, Southland Royalty Com- rates as well. According to settlement pany and Supron Energy Corporation, terms, PNM wiH renegotiate natural gas settled out of court. After seven weeks supply contracts.
of trial in Las Cruces, New Mexico, the jury ruled against Southern Union and the remaining defendants. However, the liabilityverdict was overturned on a
"From any distance it is all by itself... Risen alone off the dry plateau, this rock or a mountain of a rock has seemed as alive as it is dead."
Joseph McElroy
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Electric and Water UtilityActivities million in 1983 to $ 445 million in 1984. from a 10.2 percent interest in Palo This increase in total operating revenues Verde, located 55 miles west of Phoenix, resulted primarily from rate relief Arizona.
granted by the Commission and In December, the Nuclear Regulatory increased fuel clause revenues. Commission issued a 40-year operating Due to significant cost containment license for Palo Verde Unit 1. The efforts, utility operation and main- license temporarBy restricts power tenance expenses, excluding fuel and production to 5 percent, with successful purchased power expenses, decreased low-power testing leading to possible 2.3 percent from $ 105 mBlion in 1983 full power operation by the end of to $ 102 million in 1984. However, total 1985. Units 2 and 3 are scheduled operating expenses in 1984 increased for operation in 1986 and 1987, 14.4 percent over 1983, largely because respectively.
of higher fuel and purchased power When all units are complete, Palo costs. Verde will generate 3,810 megawatts.
Kilowatt-hour sales increased 3.5 PNM's share will be 390 megawatts.
percent in 1984, while retail sales The projected cost for the Company's were up 5.3 percent. Sales to wholesale total interest in the three units is $ 938 customers increased slightly over 1983 million.
levels. The average number of electric The new inventorying method of customers rose to 238,000, up from ratemaking will allow shareholders to 228,000 in 1983. recover the signiTicant capital invest-ment in Palo Verde, whBe protecting Marshaling Resources For The Future PNM customers from the "rate shock" attributed to sudden rate increases.
In the 1960s, PNM recognized two More important, Palo Verde is securing factors in the utility industry that would energy independence for PNM well affect the way the Company operates.
into the next century.
Sharply rising demand for electricity indicated that it was time to build San Juan Surpasses Expectations additional generating capacity, and The social, political and economic fluctuating fuel prices cautioned against San Juan represents PNM's early environment has changed over the reliance upon one fuel source. commitment to end its reliance on years, and the utility industry has In response to these signals, PNM unstable oil and gas markets. Located adapted in a number of ways. Utflities launched a construction program to adjacent to a rich coal supply, San have changed fuel sources to limit prepare for anticipated rising con- Juan has surpassed Company expec-dependence on foreign supply. They sumption. It also began to shift its fuel tations for cost, reliabBity and have broadened resource bases and base away from a dependence on oil efficiency.
established nonutBity subsidiaries to and gas to a greater reliance on coal San Juan Unit 4 stands among the ensure stability. And they now function and nuclear fuels. most reliable generating units of its in much more competitive markets. As the Company enters 1985, it has type and size in the country. Since Operating in a changing marketplace, met these objectives. Net operating April 1982, when Unit 4 was placed in PNM has adapted successfully. Amidst capacity for 1984 was 1,337 megawatts. service, it has been available for service these changes, however, PNM continues Energy is supplied by two coal-fired 89.5 percent of the time. This compares to balance its commitments to share- plants, as well as by reserve oil-fired to an industry average of about 79 holders, customers and the region with and natural gas-fired plants. A major percent.
tough productivity goals and innovative nuclear power plant, in which PNM Much of PNM's pride in San Juan marketing. holds an interest, is nearing completion. stems from its environmental record.
The coal-fired plant is equipped with il Electric and Water Utility Report Palo Verde Unit 1 Licensed pollution control equipment that meets or exceeds state and federal I operating revenues for 1984 Beginning in 1985, PNM's system is regulations.
sed 12.0 percent from $ 397 scheduled to receive its first energy 11
Eastern Interconnection Project The business of the electric ut's Opens New Markets service. For PNM's electric utility, customer success means finding ways With capacity additions in place, to assist customers with their energy PNM is looking ahead toward a period ne important management needs and seeking new of expanded marketing. One important stepin reaching ways to help industrial customers step in reaching new markets is to improve PNM's transmission capability neI/v'markets increase their profit margins. The net result of this marketing approach for tluough efforts such as the construction is to improve PNiN's PNM will be increased profitability of the Eastern Interconnection Project transmission capability and enhanced credibility with its (EIP). This 216-mile, 345-kilovolt line through efforts such as customers.
runs from just north of Albuquerque to an AC/DC converter station located the construction of the Marketing New Capacity near Clovis, New Mexico and will link Eastern Interconnection the Company with Texas. Project gg The Company initiated a marketing In January 1985, PNM began the program six years ago to increase sales sale of up to 220 megawatts per hour to wholesale customers. During this of surplus energy to Southwestern period, PNM negotiated long-term Public Service Company (SPS). This contracts and annual sales agreements ~
energy sale will end in 1989, which representing approximately 73 percent SPS may extend into 1990. Starting in of what was projected to be available 1991, the Company will purchase 100 as uncommitted capacity from 1985 megawatts of interruptible power from through 1987.
SPS, thus improving system reliability Ongoing sales include contracts to and power mix. Between 1995 and sell as much as 236 megawatts of ~
2011, PNM will purchase up to 200 Juan Unit 4 capacity to San Dieg megawatts of interruptible power from and Electric Company. Also, P SPS. contracted with Arizona Public Service To speed recovery of investment, Company to sell 60 megawatts during the Company sold the facilities asso- the 1985 summer peak. Plains Electric ciated with the EIP to private investors Generation and Transmission Cooper- ~
in February 1985. The facilities have ative, Inc. will receive 15 megawatts been leased back to PNM, reducing of peaking power until 1989.
revenue requirements by approximately During 1984, PNM also sold blocks
$ 10 million in 1984, or $ 35 million in of energy on the wholesale market to present value over the life of the project. Developing New Markets such diverse entities as El Paso Electric Company, Texas-New Mexico Power PNM recognizes that utilities operate Sangre de Cristo Water Company Company, Nevada Power Company in an increasingly competitive market. and the California cities of Burbank In January 1985, the Commission Today's customers have the option to and Pasadena.
approved an additional $ 3 million rate choose energy from a sizeable assort- The creative challenge that lies ahead increase for PNM's Sangre de Cristo ment of alternatives, including wood, for PNM is to design energy products Water Company, to be placed into propane, solar and cogeneration. that improve the Company's marketing effect in three-steps: one immediate To compete effectively in tMs market, ability. For example, the Interutility increase, a second scheduled for April PNM has stepped up its retail marketing Marketing Department is developing 1985 and a third for October 1985. efforts. A new marketing program based innovative energy packages to attract In November 1984, at the request of on the concept of "customer success" bulk power purchasers. At the same the City of Santa Fe, discussions wBI enable PNM to improve its already time, the Company is studying im-opened regarding a possible sale of strong market position by providing this division to the city. If an more responsive, flexible services to provements for the transmission system that would open up entirely new y
agreement is reached, the sale could customers.
be completed during 1985.
12
Eastern Interconnection Project North of Albuquerque, along the Rio was the Blackwater high voltage direct Grande, stands PNM's Bernalillo- current (HVDC) converter station which Algodones transmission switching sta- converts the AC of one system to a tion. Eastward, beyond the majestic uniform HVDC and then to a compatible central mountains of New Mexico, ACsystem. This rather simple-sounding stretch rambling plains and many- conversion at Blackwater is accoin-fingered gulches, reaclung for Texas. plished with complex, state-of-the-art To motorists traveling the smooth equipment ribbons of eastbound interstate, the Looking back on the project, PNM's power lines darting in and out of view EIP Project Manager, Larry SuHivan appear almost part of the landscape, sees some advantages to working under For the people who surveyed and such a tight construction schedule. "We strung the miles of PNM's Eastern knew going into the project that we Interconnection Project from Algodones would have to be flexible and creative to Clovis, New Mexico, those high to meet the extremely short deadline,"
transmission lines represent two years says Sullivan.
of hard work in dramatic terrain. The EIP team devised faster, more PNM announced the project in No- efficient ways to perform environmental vember 1982. Plans called for 216 nuies studies, land surveys, right-of-way ne-of 345.kilovolt transmission line to be gotiations and construction. Even with strung and operational in less than two the tight schedule, the team conducted
years about half the normal construc- careful route and environmental studies, tion time for a project tlus size. consulting with more than a dozen Southwestern Public Service Company federal, state and, local agencies and had agreed to purchase up to 220 community leaders. Along the way, the megawatts per hour of surplus energy project turned up such unexpected from PNM starting in January 1985 and treasures as historical artifacts, ancient continuing to at least 1989. In 1991, archaeological sites and rare flora all PNM wBI begin the purchase of 100 finds of value to scientists and archae-megawatts of interruptible power from ologists.
SPS, and from 1995 through the remain- Looking for innovative ways to speed ing life of the contract, SPS will provide up construction, the project team re-PNM with up to 200 megawatts of placed plodding truck caravans with interruptible power. helicopters and increased the pace of PNM built both the line and the tower emplacements from 6 to 30 a AC/DC Blackwater Converter Station day. The 8,000-pound towers were (Blackwater). Completed late in 1984 assembled at staging areas about every the project linked PNM for the first six miles along the line and lifted time with power systems to the east. by helicopters to their precise con-Not only does the project enable crete foundations where ground crews PNM to sell available power not currently anchored them with guy wires. The demanded by customers in New Mexico, helicopters not only saved time but but, says PNM Senior Vice President 'inimized the amount of needed access Jack Wilkins, "The interconnection land and reduced the project's environ-gives us flexibilityin planning future mental impact.
generating projects to meet New Mex- With such methods, some of which ico's energy needs. It also provides had never before been used by PNM, both PNM and SPS with additional the EIP team completed the project reliability." ahead of schedule and under budget.
One immediate consideration for the "A lot of the innovations just came out EIP team was to solve the problem of of people's enthusiasm," Sullivan says.
interconnecting the systems of PNM "We tried to anticipate problems as we and SPS. The generators of the two went along. Anyone with an idea knew systems do not rotate identically, so it was going to be heard. It was the they needed an "interpreter" to complete enthusiasm of the people involved that the connection. The ultimate solution made it a success."
13
"... I found that I was no longer lost in the enormous landscape of hills and sky.
I was a veryimportant part of the teeming life of the llano and the river."
Rudolfo A. Anaya "EA MESITA, NEW MEXICO," William Clitt, 1978, Silver Print 14
Broadening Our Base At the core of PNM's long-term Land Partnership Develops manufactures a wood substitute called business philosophy is a diversification New Potential medium density fiberboard. Construc-strategy aimed at improving return on tion of the project was completed in Three years ago Meadows entered a equity and stimulating economic growth. 1984.
land development partnership called The broadening of PNM's revenue base Formerly a joint venture between Bellamah Community Development
~ will help stabilize earnings in the years Ponderosa Products Inc. and Meadows, (BCD). Meadows owns 50 percent of ahead, while enabling the Company to MdF is now a corporation in which BCD, and a successor to Bellamah contribute to the economic development Meadows holds a 90 percent ownership.
Land Company, a long-time New Mex-of the region. PNM is examining an ico-based real estate company, owns In October, Meadows entered into a array of nonutility investments with sale-leaseback transaction with MdF the other 50 percent.
exciting future earnings potential. BCD's activities range from real involving assets of about $ 55 million.
estate acquisition, planning and devel-Sunbelt Acquires Gas Meadows Invests Capital opment to the marketing of residential Gathering Company lots or commercial and industrial tracts One of Meadows'ost exciting PNM's mining subsidiary, Sunbelt to builders. While approximately 26 activities is its venture capital portfolio.
Mining Company, Inc., (Sunbelt) percent of the land owned by BCD is By year-end Meadows held interests in acquires, markets and develops coal in New Mexico, development activities eleven companies, representing a total
~ and other mineral resources and pro- reach into Arizona, Texas, Oklahoma, investment of nearly $ 7.6 million.
vides contract mining services. Under and Colorado. The primary investment focus is in the GCNM settlement agreement, BCD has earned a respected place companies with high growth potential.
Sunbelt acquired the stock of Southern in the Southwestern real estate devel- These include a range of medium to Union Gathering Company (Gathering opment market with two large-scale high technology enterprises, both in
'tural Company), which purchases and trans-gas for GCNM. Gathering ny plant and equipment assets projects in Dallas, Texas. In 1982, BCD acquired Flower Mound, a 3,018 acre development in northwest Dallas. By start-up and later stages of develop-ment. Most such investments range from $ 250,000 to $ 1 million.
are in excess of $ 19 million. the end of 1984 almost all Flower Meadows has also joined with other Sunbelt also purchased the stock of Mound acreage had been sold to venture capital firms located in Texas, Transwestern Mining, Inc. (Trans- developers and builders. This success New York and California. This network western). Transwestern's subsidiary, led the partners to purchase the is providing a new channel for capital,
~ Calgom Mining Inc. is the operator of 4,377 acre Mountain Creek develop- contacts and expertise to support Goldstripe joint venture, a surface gold ment, 10 miles southwest of development in New Mexico, while mining project located in California. downtown Dallas. expanding Meadows'nvestment op-Both developments involve multi- portunities outside the state and region.
Investment Subsidiary purpose residential, commercial and Further development of Meadows'enture Creates Opportunities industrial land use with sales of parcels capital portfolio should increase to smaller developers who build in return on equity, while contributing to The Company's nonutility arm, accordance with BCD specifications. the New Mexico economy. Whenever Meadows Resources, Inc. (Meadows),
The projects are also similar in two possible, Meadows invests in companies invests in nonutility ventures with high other important respects: (1) they that either operate in New Mexico or growth potential. Its real estate activi- involve very large, previously un- plan expansion into the state. Meadows ties have contributed to overall earnings also lends its expertise and capital developed acreage which allows for for three years, while in July its first comprehensive master planning and support to state economic develop-msIIor New Mexico project, Montana zoning; and (2) they are large enough ment efforts, such as the Business de Fibra (MdF), began creating to provide a wide mix of land uses and Development Corporation, the Technical revenues and jobs. Examining a wide thus eliminate dependence on a single Innovation Center, New Mexico variety of potential investment oppor- segment of the real estate market. Entrepreneurs'lub and New Mexico tunities, from manufacturing plants to Technet, Inc.
high technology products, Meadows Montana de Fibra, Inc.
seeks to enhance PNM's earnings while c ibuting to the economic develop- Meadows has invested approxi-f New Mexico and the Southwest. mately $ 67 million in the Las Vegas, New Mexico MdF facility which 15
"You should understand the way it was back then, because itis the same even now."
Lesiie Marmot Silko
.<< I'X;(
'
Qittt tt).
1 C
tg g
I
~J "CAVE DWELLING, BANDELIER NATIONALMONUMENT, NEW MEXICO," David Noble, 1982, SilVer rtrint 16
Montana de Fibra The eastern slopes of the Sangre de venture extensive operating experience Cristo mountains are covered with pine in forest products, lumber manufactur-trees. At the point where the tall, ing, and marketing. The combination mountain forest meets the broad New has produced an efficient plant Mexico plains stands the once-frontier operation.
town of Las Vegas. This historic com- Ecology and efficiency go hand-in-munity has a new and beneficial hand at MdF. Use of sawmill waste to neighbor. manufacture fiberboard eliminates an
'ontaha de Fibra that,'s Spanish for environmental nuisance, which other-
"mountain of fiber" is also the name wise must be burned, buried or dumped.
of an exciting, new manufacturing MdF plant waste is used to fuel a boiler l,. t facility located a short distance from in the manufacturing process, and the Las Vegas, New Mexico within view of boiler ash is sold to Las Vegas for I
the mountains and the pine forest it fertilizer.
uses as a resource. Completed in For PNM and its shareholders, MdF 1984-under budget and six months is a milestone in a carefully wrought ahead of schedule the $ 67 mBlion nonutility investment strategy, of which facility is a source of pride for the town an important element is economic and for Meadows Resources, Inc., development in New Mexico and the PNM's whoBy-owned, nonutBity Southwest. The plant already employs investment subsidiary. over 200 people, and many other new MdF takes wood chips, shavings and employment possibilities exist because sawdust waste from local sawmBls, of ancillary businesses attracted to Las including its own nearby sawmill-and turns them into a highly marketable product called medium density fiber- \
board. When fully operational, the l~
250,000-square-foot plant wBl produce fiberboard at a rate of up to 88 million square feet annually.
You may be more familiar with me-I dium density fiberboard than you think. It It's free of knots, saws cleanly and pe l holds a screw just as snugly as the wood in your favorite rocking chair. Vegas by MdF. A modest estimate in-Unlike particle board, it does not clup dicates this increased employment will or splinter easily. Fiberboard is a high generate $ 3.5 million in income, $2 mB-quality product used to manufacture a lion in retail sales and $ 1.7 mBlion in host of common items, such as furni- bank deposits for the area. Demand for ture, cabinets, heavy-duty crates and electricity from the MdF plant alone is even church pews. expected to generate revenues for Meadows has the majority interest in PNM's electric utility of about $ 300,000 the plant. Ponderosa Products,Inc., a month.
the operating partner, is a company Las Vegas Mayor Steve Franken says with many years of experience in the MdF not only has "contributed signif-wood products industry. Strategically icantly to the economy of the town, but situated near major transportation also has enhanced our image as a good routes, emerging markets, and the home for industry."
necessary raw materials, the plant may Indeed, the industry has brought a soon capture as much as 10 percent of new kind of tlunking to the community, the national fiberboard market. says MdF Personnel Manager Abelino Meadows'ontribution to the project Montoya "More than in buildings and includes its financial strength, construc- steel, the shareholders of PNM have tion experience and knowledge of New made a wise investment in the people Mexico. Ponderosa brought to the joint of New Mexico."
17
"Black thunder-storms used to roll up from behindit and pounce on us like a panther without warning. The lightning would play roundit and jabinto it so that we were always expecting it would fire the brush. I'e never heard thunder so loud asit was there." WillaCather "LIGHTNINGOVER THE RIO GRANDE VALLEY, NEW MEXICO," Jrm Bones, 1 gas, Dye Transfer No reproduction of the works contained herein should be made without first obtaining express permission from the copyright holders.
18
~ Financial Data and Consolidated Financial Statements Comparative Operating Statistics 20 Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations 22 Management's Responsibility for Financial Statements 23 Auditors'eport Consolidated Balance Sheet 24 Consolidated Statement of Earnings 25 Consolidated Statement of Retained Earnings 25 Consolidated Statement of Changes in Financial Position 26 Notes to Consolidated Financial Statements 27 Supplementary Information Concerning the Effects of Changing Prices 34 Quarterly Operating Results 36 Stock/Dividend Data 36 19
Public Service Company of New Mexico and Subsidiaries Comparative Operating Statistics 1984 1983 1982 1981 Electric Service Energy sales kWhr (in thousands)
Residential 1,279,917 1,205,046 1,134,827 1,104,827 1,090,003 Commercial 1,706,044 1,600,199 1,515,664 1,483,105 1,441,634 Industrial 7G2)117 742,272 784,158 858,454 859,178 Other ultimate customers 184,726 185,824 215,853 186,939 167,070
'Ibtal sales to ultimate customers 3,932,803 3,733,341 3,650,502 3,633,325 3,557,885 Sales for resale 2)384,636 2,371,860 2,840,957 2,127,249 1,844,213
'Ibtal energy sales 6)317,338 6,105,201 6,491,459 5,760,574 5,402,098 Electric revenues (in thousands)
Residential S 107,396 S 90,020 S 91,065 S 80,627 S 72,596 0
Commercial 134,632 107,729 110,745 97,699 85,480 Industrial 60,439 44,166 51,714 50,111 44,524 Other ultimate customers 11,960 10,913 14,775 12,170 9,750
'Ibtal revenues from ultimate customers 304,31G 252,828 268,299 240,607 212,350 Sales for resale 131,013 136,273 149,115 86,781 59,475 ~
'ibtal revenues from energy sales 436,329 389,101 417,414 327,388 271,825 Miscellaneous electric revenues 3,646 2,846 2,743 2,581 2,598 1btal electric revenues S 438,974 S 391,947 S 420,157 S 329,969 S 274,423 Customers at year-end Residential Commercial 217,G14 25,G14 208,368 24,259 199,679 22,148 195,722 21,164 0
20,932 Industrial 43G 438 453 458 466 Other ultimate customers 194 186 185 180 179 lbtal ultimate customers 243,868 233,251 222,465 217,524 213,072 Sales for resale 6 5 6 6 6 1btal customers 243,864 233,256 222,471 217,530 213,078 Reliable net capability kW 1,337,000 1,343,000 1,473,000 1,047,000 1,080,000 Coincidental peak demand kW 976,000 998,000 957,000 992,000 913,000 ~
Average fuel cost per million BTU S 1.0970 S .9957 S 1.1502 S 1.1952 S 1.0961 BTU per kWhr of net generation 11,023 11,296 11,296 11,227 10,551 Water Service Sales gallons (in thousands) 2,392,085 2,315,980 2,842,381 2,699,816 Revenues (in thousands) S G,364 S 5,527 S 20,432',729,457 6,386 S ~ 6,196 S 6,093 ~
Customers at year-end 17,717 16,721 19,899 19,303
'Includes 4,508 customers for the Las Vegas water system which was contributed to the City of Las Vegas on December 30, 1982.
20
Public Service Company of New Mexico and Subsidiaries
~ Selected Financial Data 1984 1983 1982 1981 1980 gn thousands except per share amounts and ratios)
Total operating revenues S 445,328 $ 397,474 8 426,543 8 336,165 8 280,516 Net earnings 8 132,840 $ 140,519 8 115,822 8 107,958 8 71,436 Earnings per common share 8 3.11 8 3 53 8 3 22 8 4.23 8 3.36 Total assets 82,598,744 $ 2,486,429 $ 2,145,984 $ 1,831,803 $ 1,457,900 Preferred stock with mandatory redemption requirements 8 121,080 8 123;700 8 125,000 8 90,000 8 90,000 Long-term debt, less
~ current maturities 81,030,557 8 974,290 8 811,653 8 707,472 8 567,190 Common stock data:
Cash dividends declared per common share 8 285 8 281 8 2.77 S 2.68 8 2.04 Dividend pay-out ratio 91.7% 79.6% 86.0% 63.4X ,
60.7%
Market price per common share at year end 8 24.375 8 25.375 8 26.00 8 23.75 S 19.75 Book value per common share at year end S 25.28 8 25.20 8 24.35 8 23.87 8 23.33 Average number of common shares outstanding 35,011 32,956 28,508 20,804 15,933 urn on average common equity 12.5% 14.3X 13.6% 18.6X 14.9%
Ratio of earnings to fixed charges (S.E.C. method) 2.33 2.81 2.70 3.00 2.94
~ Capitalization:
Common stock equity 42.1 X 41.5% 42.8X 39.5X 33.3X Preferred stock:
Without mandatory redemption requirements 4.9 5.2 5.8 7.1 9.3 With mandatory redemption requirements 5.5 6.0 6.0 7.9
~ Long-term debt, less current maturities 47.5 47.3 44.5 47.4 49.5 100.0% 100.0X 100.0% 100.0X 100.0X
Public Service Company of New Mexico and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion is management's assessment of the Company's financial condition and the significant factors
'
which have an impact on the results of operations. This discussion should be read in conjunction with the Company's consolidated financial statements.
Liquidity and Capital Resources The Company is continuing a construction program which wfll be necessary to meet prospective customer service requirements. The Company's five-year utility construction program for the period 1985-1989 provides for the expenditure of approximately $ 819 million, including allowance for funds used during construction (AFUDC) of $171 million. Included in such total amount are proposed expenditures during the five-year period of approximately $ 67 mfllion for the Company's share of nuclear fuel for the Palo Verde Nuclear Generating Station and approximately $ 112 million for gas utility construction expenditures which wfll be required as a result of the Company's acquisition of gas utility assets in New Mexico.
The Company currently estimates total utility external funding requirements for the 1985-1989 period to be approximately ~
$ 427 million including $ 293 million for long-term debt repayments, mandatory preferred stock redemptions and repayment of notes issued in connection with the acquisition of gas utility assets in New Mexico. Estimates of external funding requirements give effect to the implementation of the "Inventory of Capacity" ratemaking methodology. (See page 5.) The Company's projection of internal cash generation in the 1985-1989 time period assumes timely and adequate rate relief with respect to both retail and wholesale customers. The projection also assumes that the Company's non-utility subsidiaries will provide their capital requirements from internally generated funds and from independent borrowings which would be nonrecourse to the utility.
Utilityconstruction expenditures for the year ended 1984 amounted to $ 278 million including AFUDC of $ 73 million.
In 1984, internal sources of funds provided from continuing operations equaled $ 16 million. In 1984, the Company issued
$ 65 million of first mortgage bonds, $ 48 million of common stock and utilized $ 15 million of proceeds from pollution control financings to finance the Company's utility construction program. In addition to the issuance of permanent and long-term securities, the Company has financed its capital expenditures on an interim basis through the use of short- ~
borrowings, commercial paper and reduction of temporary cash investments. Arrangements for bank lines of credit amounted to $ 21 million and revolving credit arrangements amounted to $143 million at December 31, 1984.
The indenture under which the Company's first mortgage bonds may be issued and the Restated Articles of Incorporation of the Company under which additional shares of its preferred stock may be issued restrict the ability of the Company to issue additional first mortgage bonds and additional preferred stock, respectively, unless certain earnings tests provided therein are met. As of December 31, 1984, after giving effect to the acquisition of gas utility assets in New Mexico, the ~
Company could have issued $ 238 million of additional first mortgage bonds at an assumed interest rate of 13 I/4 percent.
The Company could have issued $ 307 million of additional preferred stock at an assumed dividend rate of 13 percent without the consent of the holders of outstanding preferred stock.
The Company's capital structure at December 31, 1984 consisted of 47.5 percent long-term debt less current maturities, 5.5 percent preferred stock with mandatory redemption requirements, 4.9 percent preferred stock without mandatory redemption requirements and 42.1 percent common stock equity.
Results of Operations Operating revenues increased 12.0 percent, or $ 47.9 million, in 1984 over 1983. The increase reflects increased kWhr sales along with rate relief granted by the New Mexico Public Service Commission which became effective in July 1984.
In addition, increased fuel and purchased power expenses which are passed on to customers resulted in higher recovery of ~
fuel costs through fuel adjustment clauses in 1984. The decrease in kWhr sales to wholesale customers in 1983 was the primary factor contributing to the decreased operating revenues in 1983 from 1982.
Other operation expenses in 1984 decreased approximately $ 4.5 million from 1983 as a result of the sale of a 28.8 percent ownership interest in San Juan Unit 4 in December 1983. Fuel and purchased power expenses, however, increased substantially in 1984 over 1983 due primarily to a long-term power contract.
The 48.6 percent decrease in fuel and purchased power expense in 1983 from 1982 was due primarily to a greater volume of ~
economy energy sales to other utilities, offsetting fuel and purchased power expense in 1983.
During 1984, the Company earned approximately $ 14.8 million of interest from temporary cash investments, an increasr
$ 13.7 million over 1983. Such investment funds consisted primarily of proceeds from the sale of a 28.8 percent ownershi~
22
Public Service Company of New Mexico and Subsidiaries interest in San Juan Unit 4. However, net other income and deductions decreased in 1984 Nrom 1983 due primarily to inclusion of an after-tax gain of $ 24.1 mfllion in 1983 from the sale of the equity interest in a trust which held certain coal leases.
Interest on long-term debt has increased steadily over the three-year period, reflecting issuances of first mortgage bonds and pollution control revenue bonds to finance the Company's construction program.
As a result of items discussed above, net earnings of the Company fluctuated during the three-year period. However, net earnings of the Company, exclusive of the gain on the sale of the equity interest in the trust in 1983, have increased over the comparable period. After eliminating the $ 24.1 million gain ($ .73 per share) on the sale of the equity interest in the trust, net earnings applicable to common stock increased in 1983 and 1984, whfle earnings per share of common stock decreased in 1983 and increased in 1984.
The effect of inflation on the Company's operation is discussed within the Supplementary Information Concerning the Effects of Changing Prices on pages 34-35.
Management's Responsibility for Financial Statements The management of Public Service Company of New Mexico is responsible for the preparation and presentation of the
~ accompanying financial statements. The financial statements have been prepared in conformity with generally accepted accounting principles and include amounts that are based on informed estimates and judgments of management.
Management maintains a system of internal accounting controls which it believes is adequate to provide reasonable assurance that assets are safeguarded, transactions are executed in accordance with management authorization and the financial records are reliable for preparing the financial statements. The system of internal accounting controls is supported by written policies and procedures, a staff of internal auditors who conduct comprehensive internal audits and
~ e selection and training of qualified personnel.
oard of Directors, through its Audit Committee comprised entirely of outside directors, meets periodically with management, internal auditors and the Company's independent auditors to discuss auditing, internal control and financial reporting matters. 1b ensure their independence, both the internal auditors and independent auditors have full and free access to the Audit Committee.
The independent auditors, Peat, Marwick, Mitchell gr, Co., are engaged to examine the Company's financial statements in
~ accordance with generally accepted auditing standards.
Auditors'eport The Board of Directors and Stockliolders Public Service Company of New Mexico:
We have examined the consolidated balance sheet of Public Service Company of New Mexico and subsidiaries as of December 31, 1984 and 1983 and the related consolidated statements of earnings, retained earnings and changes in financial position for each of the years in the three-year period ended December 31, 1984. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the aforementioned consolidated financial statements present fairly the financial position of Public Service Company of New Mexico and subsidiaries at December 31, 1984 and 1983 and the results of their operations and changes in their financial position for each of the years in the three-year period ended December 31, 1984, in conformity with generally accepted accounting principles applied on a consistent basis.
PEAT, MARWICK, MITCHELLEr, CO.
iquerque, New Mexico iary 18, 1985 23
Public Service Company of New Mexico and Subsidiaries Consolidated Balance Sheet December 31 1984 I Assets (in thousands)
Utilityplant, at original cost (notes 3 and 7):
Electric plant in service S1,436,929 $ 1,304,249 Water plant in service 35,729 34,906 Common plant in service 35 909 31 628 1,608,567 1,370,783 Less accumulated depreciation and amortization 282 002 240 097 1,225,965 1,130,686 Construction work in progress 832,262 705,191 Electric plant held for future use 06 142 63 355 Net utility plant 2 123 359 1 899 232 Other property and investments:
Non-utility property, at cost, net of accumulated depreciation, partially pledged 110,602 48,483 Non-utility property under construction, at cost 31,050 Investment in unconsolidated affiliates 70,166 51,063 Other, at cost 0 416 8 720
'Ibtal other property and investments 100 183 139 316 Current assets:
Cash 9,434 5,178 Temporary cash investments 140,776 318,977 Receivables, net 63,799 45,774 Fuel, materials and supplies, at average cost 41,629 43,781 Prepaid expenses 4 049 3 029 Total current assets 2411 687 416 739 Deferred charges 35 616 31 142 Capitalization and LiabiHties S2 598 744 ~$ 2 48 ~
Capitalization:
Common stock equity (note 2):
Common stock-outstanding 36,127,189 shares in 1984 and 33,932,809 shares in 1983 S 180,636 $ 169,664 Additional paid-in capital 549,633 511,975 Retained earnings 182 064 173,420
'ibtal common stock equity 913,233 855,059 Cumulative preferred stock without mandatory redemption requirements (note 2) 106,000 106,000 Cumulative preferred stock with mandatory redemption requirements (note 2) 121,080 123,700 Long-term debt, less current maturities (note 3) 1 030 567 0?4 290
'ibtal capitalization 2 170 870 2 059 040 Current liabHities:
Short-term debt (note 4) 30,313 126,290 Accounts payable 34,660 36,669 Current maturities of long-term debt (note 3) 61,708 5,631 Accrued interest and taxes 33,168 35,823 Provision for refunds 11,161 1,046 Other current liabilities 20,323 24,440
'ibtal current liabilities 181 313 229,899 Deferred credits:
Accumulated deferred investment tax credits (note 5) 101 805 84,499 Accumulated deferred income taxes (note 5) 114,868 87,683 Other deferred credits 29 808 25 290
'Ibtal deferred credits 246,661 107,481 Commitments, contingencies and subsequent events (notes 5, 7, 8, 9 and 12) 62,608 744 S2 486 ee accompanying notes to consolidated financial statements.
24
Public Service Company of New Mexico and Subsidiaries Consolidated Statement of Earnings Year ended December 31 1984 1983 1982 (in thousands except per share amounts)
Operating revenues:
Electric (note 8) S 438,974 S391,947 S420,157 Water 0 364 5 527 6 386
'ibtal operating revenues 445 32$ 397 474 426,543 Operating expenses:
Fuel and purchased power 96,904 59,365 115,531 Other operation expenses 68,278 72,760 68,842 Maintenance and repairs 34,076 32,028 38,125 Depreciation and amortization 48,976 47,172 34,984 1hxes, other than income taxes 19,246 18,694 16,552 Income taxes (note 5) 32 36G 31 2D3 34,855
'Ibtal operating expenses 298 884 261 227 308 889 Operating income 140 494 136 247 117 654 Other income and deductions:
Allowance for equity funds used during construction 52,764 45,789 45,911 Equity in earnings of unconsolidated affiliates, net of taxes (note 5) 7,976 6,373 2,001
~ Gain on sale of equity interest in trust, net of taxes (notes 5 and 10) 24,129 Other, net of taxes (note 5) 8 3G5 779 1 178 Net other income and deductions 77 070 49 09D Income before interest Charges 21G D88 213.317 166 744 Interest charges:
~ .rest on long-term debt 98,463 80,922 55,537 r interest charges 8,421 11,182 14,476 owance for borrowed funds used during construction ~23 63G ~19 300 ~19 091 Net interest charges 83 24$ 72 798 50 922 Net earnings 132,840 140,519 115,822 Preferred stock dividend requirements 23,990 24,187 24 062 Net earnings applicable to common stock 3108 850 S116 332 3 91 760 Average number of common shares outstanding 36 011 32 956 28 508 Earnings per share of common stock S 3.11 S 3.53 S 322 Dividends paid per share of common stock S 2.85 S 2.81 S 277 Consolidated Statement of Retained Earnings Year ended December 31 1984 1983 1982 (in thousands)
Balance at beginning of year (note I) S 173,420 S 149,409 S138,002 Net earnings 132,840 140,519 115,822 Dividends:
Cumulative preferred stock (23,990) (24,187) (24,062)
Common stock ~99,306 ~92 321 ~80 353
~nce at end of year S182 964 2173 420 S149 409 See accompanying notes to consolidated financial statements.
25
Public Service Company of New Mexico and Subsidiaries Consolidated Statement of Changes In Financial Position Year ended December 31 1984 1983 On thousands) 0 Funds provided:
Net earnings S 132,840 $ 140,519 $ 115,822 Charges (credits) to earnings not requiring funds:
Depreciation and amortization 62,844 51,060 37,940 Provision for non.current deferred income taxes, net 27,176 34,463 4,279 Investment tax credits, net 17,30G 9,076 16,463 Allowance for equity funds used during construction (62,754) (45,789) (45,911)
Earnings of unconsolidated affiliates ~14 153 ~9321 ~3138 Funds derived from operations 1G3,268 180,008 125,455 Sale of common stock 48,264 50,886 184,068 Sale of cumulative preferred stock 35,000 Sale of first mortgage bonds 65,000 65,000 60,000 Proceeds from pollution control revenue bonds 14,683 101,183 44,143 Increase in short-term debt, net 62,428 Increase in other long-term debt 31,377 3,711 4,930 Proceeds from sale of utility plant, net 156,406 Decrease in working capital, other than short-term debt 214,443 Other 11 910 8 461 15 482 S 548 825 $ 628 083 $ 469 078 Funds used:
Cash dividends S 123,296 $ 116,508 $ 104,415 Utility plant additions 222,680 210,014 267,137 Increase in other property and investments 39,832 27,788 12,470 Decrease in short-term debt, net 96,977 Reduction of long-term debt 54,2GG 7,370 Increase in working capital other than short-term debt 255,125 Other 12 874 11 278 14 301 S 648 826 $ 628 083 S469 078 Changes in working capital other than short-term debt:
Cash S 4,26G $ 457 S (5,384)
'ibmporary cash investments (178,201) 265,2?0 25,116 Receivables, net 8,026 (13,434) 4,066 Fuel, materials and supplies (2,162) (2,461) 12,240 Prepaid expenses 1,020 (634) 1,052 Accounts payable 2,019 (1,307) 12,809 Current maturities of long-term debt (4G,077) (1,939) 1,698 Accrued interest and taxes 2,665 (9,177) 4,821 Provision for refunds (10,105) 18,055 (16,951)
Other current liabilities 4,117 295 ~18,315 Increase (decrease) in working capital other than short-term debt ~$ 214 443 $ 255 125 2 21 152 See accompanying notes to consolidated financial statements.
26
Public Service Company oi New Mexico and Subsidiaries Notes to Consolidated Financial Statements December 31, 1984, 1983 and 1982
'
Summary of Significant Accounting Policies of Accounts
~ respect to utility operations, the Company maintains its accounting records in accordance with the uniform system of accounts prescribed by the Federal Energy Regulatory Commission (FERC) and adopted by the New Mexico Public Service Commission (NMPSC). As a result of the ratemaking process, the application of generally accepted accounting principles by the Company differs in certain respects from the application by non-regulated businesses. Such differences generally regard the time at which certain items enter into the determination of net earn~< in order to follow the principle of matching costs and revenues. The balance of retained earnings as of January 1, 1982 has been restated by a charge of $ 512,000 to reflect a FERC audit adjustment applicable to periods prior to those presented herein. The effect of this restatement on the periods presented herein is insignificant.
Principles of Consolidation The consolidated financial statements include the accounts of Public Service Company of New Mexico, its wholly-owned subsidiaries and its majority-owned joint ventures. All significant intercompany transactions and balances have been eliminated.
The Company's investments in unconsolidated affiliates are accounted for by the equity method.
UtilityPlant Utility plant is stated at original cost, which includes payroll-related costs such as taxes, pension and other fringe benefits, administrative costs and an allowance for funds used during construction.
It is Company policy to charge repairs and minor replacements of property to maintenance expense and to charge major replacements to utility plant. Gains or losses resulting from retirements or other dispositions of operating property in the normal course of business are credited or charged to the accumulated provision for depreciation.
Depreciation Provision for depreciation of utility plant is made at annual straight-line rates approved by the NMPSC. The average depreciation rates used were as follows:
Electric plant 3.29% 3.30% 3.16%%d Water plant 2.04 1.89 1.94 Common plant 7.28 7.32 6.87 The provision for depreciation of certain equipment, including amortization applicable to capital leases, is charged to clearing accounts and subsequently allocated to operating expenses or construction projects based on the use of the equipment. /
Depreciation of non-utility property is computed on the straight-line method.
for Funds Used During Construction (AFUDC) 'llowance As provided by the uniform system of accounts, AFUDC, a noncash item, is charged to utility plant. AFUDC represents the cost of borrowed funds (allowance for borrowed funds used during construction) and a return on other funds (allowance for equity funds used during construction) and is allocated based on the method required by FERC. The Company capitalizes AFUDC on construction work in progress (CWIP) to the extent allowed by regulatory agencies. The Company also capitalizes AFUDC on its plant held for future use as allowed by the NMPSC.
AFUDC is computed using the maximum rate, net of taxes, permitted by FERC. Effective May 1983, the FERC changed the prescribed formula and required AFUDC to be calculated on pollution control trust fund balances with the interest earned from such funds to be credited against CWIP. The rates used were 9.34 percent, 8.74 percent and 9.38 percent for 1984, 1983 and 1982, respectively, compounded semiannually.
The Company records as AFUDC carrying charges associated with specifically identifiable uncommitted generating capacity as allowed by the NMPSC. Uncommitted capacity was 97 MW for 1984 and 105 MW for 1983 and 1982. The carrying charge is calculated using the maximum rate, net of taxes, permitted by FERC except for the exclusion of short-term debt from such calculation. In December 1984, the NMPSC issued an order allowing the deferral of carrying charges for the period from January 1, 1984 through June 6, 1984 and allowing the deferral of carrying charges to resume beginning in July 1985. Amounts recorded under NMPSC orders have totaled $ 17.2 million. Of such amounts, 812.3 m'ion have been or are presently being recovered through rates. The remainder is to be recovered over the useful life of operty when such capacity is required for customers.
27
Public Service Company of New Mexico and Subsidiaries Deferred Fuel and Purchased Power Economy and other near-term energy transactions are shown as a reduction of fuel and purchased power expenses.
The Company uses the deferral method of accounting for the portion of fuel and purchased power costs which is reflected in subsequent periods under fuel adjustment clauses.
Amortization of Debt Discount, Premium and Expense Long-term debt discount, premium and expense of issuance are amortized over the lives of the respective issues on the debt outstanding method.
Income hoes Certain revenue and expense items in the Consolidated Statement of Earnings are recorded for financial reporting purposes in a year different from the year in which they are recorded for income tax purposes. Deferred income taxes are provided on these timing differences to the extent allowed for ratemaking purposes. This method known as tax normalization is used primarily for differences attributable to deferred fuel costs and the use of liberalized depreciation and accelerated cost recovery methods. Certain other timing differences result in reductions of income tax expense in the current year as required by the NMPSC. This flow-through method is used primarily for minor differences between book and tax depreciation and for certain capitalized construction costs.
Rates subject to FERC control allow recovery of amounts necessary to provide additional tax normalization of the items described above which are accounted for under the flow-through method for other customers. Provision has been made ~
for additional deferred income taxes attributable to amounts collected under these rates.
Non-utility deferred taxes are provided on all non-permanent differences between book and taxable income. These differences consist primarily of interest and other expenses which are capitalized for book purposes and income which is taxable in periods other than when recognized for financial reporting purposes.
The Company defers investment tax credits related to utility assets and amortizes them over the estimated useful lives of the related assets. Investment tax credits generated by non-utility properties are recognized as reductions of consolidated income tax expense.
Revenues Revenues are recognized based on cycle billings rendered to customers monthly. The Company does not accrue revenues for service provided but not billed at the end of a fiscal period.
(2) Common Stock and Cumulative Preferred Stock The number of authorized shares of common stock with par value of 85 per share is 80,000,000 shares at December 31, 1984 and 40,000,000 shares at December 31, 1983. The Board of Directors has periodically reserved common stock for the Shareholder's Dividend Reinvestment Plan, the Employee Stock Purchase Plan, the Master Employee Savings Plans and the Consumer Stock Plan (Stock Plans), with 1,674,000 shares remaining unissued at December 31, 1984.
The number of authorized shares of cumulative preferred stock is 10,000,000 shares. Information concerning the cumulative preferred stock at December 31, 1984 is as follows:
Stated Aggregate Stated Shares Redemption Stated Value Value Outstanding Price (in thousands)
Without mandatory redemption requirements:
1965 Series, 4.58% 8100 130,000 8102.00 S 13,000 1974 Series, 9.2R 100 170,000 104.00 17,000 1975 Series, 10.12M 100 100,000 107.00 10,000 9.16% Series 25 800,000 26.70 20,000 8.48% Series 100 200,000 106.00 20,000 8.80K Series 100 260,000 106.20 26,000 1,660,000 S 106,000 With mandatory redemption requirements:
8.75% Series 100 360,800 105.80 S 36,080 14.75% Series 100 500,000 114.75 50,000 12.52K Series 50 700,000 52.97 35,000 1,560,800 8121,080 The Company, upon thirty days notice, may redeem the cumulative preferred stock at stated redemption prices pl accrued and unpaid dividends. Redemption prices are at reduced premiums in future years. Redemption may not made through certain refunding operations prior to April 1, 1990 for the 14.75% Series and October 15, 1991 for t .
12.52% Series.
28
Public Service Company of New Mexico and Subsidiaries The Company has agreed to indemnify the holders of the 12.52% Series against the loss of certain income tax benefits. However, the Company has the option to redeem the entire series should payments under such indemnification increase the effective dividend rate on the stock by more than one-half of one percent.
M datory redemption requirements for 1985, 1986, 1987, 1988 and 1989 are none, S2,000,000, S5,613,000,
,000 and S5,633,000, respectively.
~ ianges in common stock, additional paid-in capital and cumulative preferred stock were as follows:
Cumulative Preferred Stock Without Mandatory With Mandatory Redemption Redemption Common Stock Requirements Requirements Number Aggregate Additional Number Aggregate Number Aggregate of Par Paid-In of Stated of Stated Shares Value Capital Shares Value Shares Value (Dollars in thousands)
Balance at December 31, 1981 24,675,305 8123,377 S 327,625 1,660,000 $ 106,000 900,000 S 90,000 Public issue of stock 6,000,000 30,000 116,924 700,000 35,000
~ Stock plans 1,365,426 6,827 25,928 Balance at December 31, 1982 32,040,731 160,204 470,477 1,660,000 106,000 1,600,000 125,000 Stock plans 1,892,078 9,460 41,298 Redemption of stock 200 ~13,000 ~1,300 Balance at December 31, 1983 33,932,809 169,664 511,975 1,660,000 106,000 1,587,000 123,700 Stock plans 2,194,380 10,972 37,151 Redemption of stock 507 ~26,200 ~2.620 Balance at December 31, 1984 36,127,189 8180,636 8549,633 1,660,000 $ 106,000 1,560,800 S 121,080 Charter provisions relating to the cumulative preferred stock and the indenture securing the first mortgage bonds impose certain restrictions upon the payment of cash dividends on common stock of the Company. At December 31, 1984, there no retained earnings restricted under such provisions.
ng-'Iform Debt The details of the Company's outstanding long-term debt are as follows:
Issue and Final Maturity Interest Rates 1984 1983 (ln thousands)
First mortgage bonds:
1984 through 1989 3 5/8% to 12.95% S 58,140 S 60,330 1990 through 1994 4 7/8% to 13 1/8% 741203 9,403 1995 through 1999 5 7/8% to 7 1/4% 30,397 30,716 2000 through 2004 7 1/2% to 10 1/8% 81,449 81,896 2005 through 2009 8 1/8% to 9 1/8% 115,344 116,538
~ 2010 through 2014 12 7/8% to 17 1/2% 185,000 185,000 1993 through 2013 securing pollution control revenue bonds:
Pollution control series 5.9% to 10 3/4% 414,045 337,000 Annual tender bonds 7 5/8% 23,000 Funds held by trustee (35,4G8) ~11,03!l 1btal first mortgage bonds 946,110 809,784 Pollution control revenue bonds:
1984 through 2013 5% to 10 3/4% 100,000 208,090 1985 59% to 65% of prime rate 39,000 23,500 Funds held by trustee (39,708) (70,118)
Other, including unamortized premium and discount 3G,863 8,665
'Ibtal long-term debt 1,082,265 979,921 nt maturities ~51,708 ~5,631 ng-term debt, less current maturities S1,030,557 S974,290 i ~ 29
Public Service Company of New Mexico and Subsidiaries Substantially all utility plant is pledged to secure the first mortgage bonds. A portion of certain series of long-term debt will be redeemed serially prior to their due dates. The aggregate amounts (in thousands) of maturities on all long-term debt outstanding at December 31, 1984 are as follows:
1985 1986 1987 1988 1989 851,708 11,023 11,301 18,938 11,608
~.
The annual tender bonds are redeemable at the option of the holders annually on November 1. The interest rate will be adjusted annually, as of each November 1, so that the bonds will have a market value as of the date of such adjustment which approximates their par value. The bonds are subject to a maximum interest rate of 15 percent. The Company considers these obligations, as well as 839 million of unsecured pollution control revenue bonds scheduled to mature in 1985, to be long-term debt since the Company has available unused noncancelable long-term lines of credit (note 4) equal to or exceeding the aggregate outstanding principal amounts and it is management's intent to refinance these obligations on a long-term basis. Accordingly, these obligations have been excluded from the above five-year maturity schedule.
In August 1977, the City of Farmington, New Mexico, issued and sold 877,045,000 principal amount of its 5.9 percent Pollution Control Revenue Refunding Bonds, Series 1977, the proceeds of which were used to retire $ 77,000,000 of outstanding Pollution Control Revenue Bonds on October 1, 1984.
(4) Short-Term Debt The Company's interim financing requirements are met through the issuance of commercial paper and notes payable to banks which, respectively, amounted to S22 million and 88 million at December 31, 1984 and 891 million and $ 35 million at December 31, 1983. At December 31, 1984, the company had unused credit commitments from various banks totaling 8164 million. These credit arrangements are used to support the issuance of commercial paper and to provide for short-term borrowings. The Company generally pays commitment fees or maintains cash balances on deposit with banks to assure availability of its credit commitments. These commitments consist of both lines of credit and revolving credit agreements ranging in duration from one to six years.
(5) Income Ihxes Income taxes consist of the following components:
ee 1984 1983 1982 (ln thousands)
Current Federal income tax 8 1,878 8 3,046 S 1,262 ~
Current state income tax 2,519 3,989 2,349 Deferred Federal income tax 20,365 25,350 7,332 Deferred state income tax 3,966 4,448 980 Investment tax credit utilized 20,726 18,640 16,785 Amortization of accumulated investment tax credit ~3060) ~2958) ~2639) lbtal income taxes 846 894 852 515 826 069 ~
Charged to operating expenses 832,356 831,208 834,855 Charged to other income and deductions 14 088 21 307 ~8786 1btal income taxes S46 394 852 515 826 069 The Company has investment tax credit carryforwards of approximately 847 million as of December 31, 1984 which would, if unused, expire in 1996 through 1999 and a charitable contribution carryforward of $ 3 million which would, if 0 unused, expire in 1987.
Deferred income taxes result from certain tiining differences between the recognition of income and expense for tax and financial reporting purposes, as described in note (1).
30
Public Service Company of New Mexico and Subsidiaries The major sources of these differences for which deferred taxes have been provided and the tax effects of each are as follows:
1984 1983 1982 (ln thousands) red fuel costs $ 1,251 $ (140) $ (6,566)
Depreciation and cost recovery timing differences 24,000 17,587 16,153 Provision for refunds (7,071) (232)
Charitable contribution carryforward 2,301 3,926 (6,915)
Sale of an equity interest in a trust 10,287 741 Other 8 830 ~1630 4 899 Total deferred taxes 824 381 829 798 8 8312 The Company's effective income tax rate was less than the Federal income tax statutory rate for each of the years shown.
The differences are attributable to the following factors:
1984 1983 1982 Federal income tax statutory rate 46.0% 46.0% 46.0%
Allowance for funds used during construction (19.6) (15.5) (21.1)
Charitable contribution of appreciated property (3.4)
'lhxes recorded at capital gains rate net of related minimum tax (6) (3.5)
Amortization of utility and flow-through of non-utility investment tax credits (4.1) (1.5) (1.9)
Other 4.2 1.7 ~1. 1 Company's effective tax rate 25.9% 27.2% 18.4%
The cumulative net amount of income tax timing differences (which excludes AFUDC) upon which deferred income taxes have not been provided is estimated to be approximately $ 17 million as of December 31, 1984.
0 igust 1984, the Internal Revenue Service issued a statutory notice of deficiency related to the examination of rn Coal Co. for the tax years 1975 and 1977-1981. Western Coal Co., liquidated ih 1981, was a corporation owned fifty-percent by the Company. The Company has evaluated its exposure on the issues raised and is of the opinion that any amount eventually found to be due will have an immaterial impact on the financial statements. A provision for estimated additional tax expense has been made in the financial statements.
(6) Pension Plan The Company and its subsidiaries have a pension plan covering substantially all of their employees, including officers.
The plan is noncontributory and provides for monthly pension payments to participating employees with 30 years of service or at age 65 with less than 30 years of service. The amounts of such payments are dependent upon length of service and the average salary of the three highest consecutive years of employment. The Company's policy is to fund pension costs which were $ 5,560,000 in 1984, $ 8,500,000 in 1983, and $ 7,798,000 in 1982, which include normal costs and amortization of past service costs over 30 years. In 1984, the funding was reduced by $ 2,650,000 due to the utilization of a portion of the existing credit balance in the funding standard account.
Changes in plan characteristics were not deemed significant enough to warrant a 1984 actuarial valuation report. As of the two most recent actuarial valuation dates, accumulated plan benefits and plan net assets for the Company's pension plan are as follows:
January 1 1983 1982 (ln thousands)
Actuarial present value of accumulated plan benefits:
Vested $ 29,989 $ 21,014 Nonvested 4,086 2,163
$ 34,075 $ 23,177 Net assets available for benefits (market value) $ 45,308 $ 29,301 31
Public Service Company of New Mexico and Subsidiaries The weighted average assumed rate of return used in determining the actuarial present value of accumulated plan benefits was 8 percent for 1983 and 8 3/4 percent for 1982. The effect of this change and a revision in the mortality assumption was an increase in the actuarial present value of accumulated plan benefits by approximately 83.2 million.
(7) Construction Program and Jointly-Owned Plants The Company operates and jointly owns the steam turbo-electric San Juan Generating Station. In December 1983, the Company sold 28.8 percent of its undivided interest in San Juan Unit 4. The Company received approximately 8170 million from the sale, which approximates the book value of the assets sold plus a recovery of applicable income taxes.
The Company owns an undivided 50 percent interest in the first three units of the San Juan Generating Station and 62.725 percent in Unit 4.
The Company also is participating with several other utilities in the construction of the Palo Verde Nuclear Generating Station and anticipates that the first unit will be in commercial operation for the Company's 1986 summer peak.
At December 31, 1984, the Company's ownership interest and investments in the jointly-owned generating facilities were as follows:
Construction Plant Accumulated Work In Ownership Station el Type In Service Depreciation Progress Interest (in thousands)
San Juan Generating Station (Coal) 8820,955 8119,868 8 17,107 53.8%
Palo Verde Nuclear Generating Station (Nuclear) 736,172 10.2 Four Corners Generating Station Units 4 and 5 (Coal) 56,148 10,965 35,338 13.0 These amounts represent the Company's share of capital costs, for which the Company has provided its own financing.
The Company's share of direct expenses is included in the corresponding operating expenses in the Consolidated Statement of Earnings. The Company also has undivided interests in transmission facilities which are not significant.
It is estimated that the Company's electric utility construction expenditures for 1985 will approximate $ 243 million, including expenditures of the jointly-owned projects. In connection therewith, substantial commitments have been made.
(8) Long-Term Power Purchase and Sales Contracts The Company has entered into contracts for the purchase of electric power. Under one of these'contracts which expires in 1995, the Company is obligated to pay certain minimum amounts and a variable component representing the expenses associated with the energy purchased and debt service costs associated with capital improvements. 'Ibtal obligations under this contract during 1984 amounted to 836.4 million. 'Ibtal minimum payment for each of the next five years is 822.8 million.
The Company has contracts to sell power to two unaffiliated utility companies, which accounted for approximately 12.9 percent and 10.0 percent of total operating revenue during 1983 and 12.5 percent and 10.5 percent during 1982. Sales to these unaffiliated utility companies accounted for less than 10 percent of total operating revenues in 1984.
(9) Lease Commitments The Company leases data processing, communication, office and other equipment, office space, utility poles (joint use) and real estate. The leases for office buildings provide for purchase options equal to fair market value at the end of the primary terms. Other purchase options, renewal options and contingent rental provisions were not significant.
Leased property under capital leases at December 31, 1984 and 1983 is as follows:
1984 1983 0n thousands)
Data processing equipment 85,283 85,137 Other 428 409 5,711 5,546 Less accumulated amortization 1,864 1,869 83,847 83,677 32
Public Service Company of New Mexico and Subsidiaries Future minimum lease payments at December 31, 1984 are:
Capital Leases Operating Leases (in thousands) 1985 $ 1,886 $ 4,233 1986 1,584 3,712 1987 1,475 3,603 1988 1,371 3,620 1989 1,163 3,457 Later years 53 58,585
'ibtal minimum lease payments 7,532 $ 77,210 Less amount representing executory costs 21 Net minimum lease payments 7,511 Less amount representing interest 3,056 Present value of net minimum lease payments $ 4,455 Operating lease expense was $ 6,047,000 in 1984, $ 5,252,000 in 1983 and $ 5,243,000 in 1982. As of December 31, 1984, the aggregate minimum payments to be received in future periods under noncancelable subleases are approximately $ 3,026,000.
(10) Gain on Sale of Equity Interest in Trust The Company held, in a trust, a retained economic interest in a sublease covering various Federal, state and private coal leases at the mine which is the primary source of coal for the San Juan Generating Station. See note (7). On June 30,
'1983 the interest in.the trust was sold to institutional investors for $ 38.7 million, resulting in an after-tax gain of
~ approximately $ 24.1 million, or $ .73 per share of common stock.
(ll) Charitable Contribution of Appreciated Property On December 30, 1982, the Company entered into an agreement with the City of Las Vegas, New Mexico whereby the Company contributed its Las Vegas water system to the City of Las Vegas. The physical assets contributed had a net book value of $ 6,726,000 and a fair market value of $ 19,600,000. The transaction resulted in a $ 1,171,000 gain after ition of income tax benefits under the rules governing contributions of appreciated property.
Subsequent Events Gas Company of New Mexico Acquisition Effective January 28, 1985, the Company acquired the New Mexico natural gas utility assets of Southern Union Company.
The acquisition was in connection with the settlement of antitrust litigation brought against Southern Union by the Company and others. The assets were purchased for net book value net of liabilities assumed, which was approximately
$ 224.3 million, less $ 51.5 million representing the amount of the settlement to all plaintiffs. Of the $ 51.5 million settlement, $ 15.9 million less expenses will be refunded to the Company's customers and $ 35.6 million represents the other plaintiffs'ortion. The Company paid $ 97.5 million in cash at closing and issued $ 70.7 million of one-year 8% notes and $ 40.2 million of two-year 8% notes.-
The acquisition will be accounted for as a purchase and, accordingly, the Company's financial statements will reflect the 0 assets, liabilities and operating results from the acquisition date forward. The following unaudited pro forma consolidated balance sheet gives effect to the above transaction as if it had been consummated on December 31, 1984. Valuations assigned are preliminary and subject to change.
December 31, 1984 Assets (in thousands)
Net utility plant $ 2,348,611, Other property and investments 190,193 Current assets 238,878 Deferred charges 42,205
$ 2,819,887 Capitalization and Liabilities
'Ibtal capitalization $ 2,278,915 Current liabilities 261,507 Deferred credits 279,465
$ 2,819,887 33
Public Service Company of New Mexico and Subsidiaries O
The following summarizes on a pro forma basis the unaudited combined results of operations as though the acquisition had occurred on January 1, 1984..
Year ended December 31, 1984 (ln thousands except per share amount)
Operating revenues 8903,037 Net earnings 142,705 Earnings per share of common stock 3.39 Sale and Leaseback On February 5, 1985, the Company sold a 216-mile, 345kV bulk electrical transmission line and related facilities to a trust comprised of two institutional investors. The Company will lease the system on a long-term net lease basis. The total consideration from the sale was the appraisal value of 873 million which approximates the book value plus recovery of applicable income taxes. The transaction will be accounted for as an operating lease with semiannual lease payments of ~
83.7 million over a 30 year term.
Supplementary information Concerning the Effects of Changing Prices The following supplementary information is presented in accordance with the requirements of the Financial Accounting Standards Hoard. These requirements deal with certain aspects of inflation in regard to the effects of changes in specific prices of certain assets of the Company (the "current cost" method).
The Company believes it is important for users of the financial statements to develop an understanding of the more significant impacts of inflation upon the Company. However, the Company advises readers that the information presented is determined through the use of experimental techniques and is not intended to replace traditional statements based on historical cost.
The current cost data reflects the change in specific prices of utility plant and equipment from the date the property was acquired to the present, as measured primarily by the Handy-Whitman Index of Public Utility Construction Costs.
Consolidated Statement of Earnings A@usted for Changing Prices As Reported Adf'usted for
~o CI~
in the Primary in Specific Prices Year Ended December 31, 1984 Statement (Current Cost)
(ln thousands)
Operating revenues 8445,328 $ 445,328 Operating expenses (excluding depreciation and amortization) 249,859 249,859 Depreciation and amortization (note A) 48,975 75,157 Interest charges 83,248 83,248 Other income and deductions, net ~69,594 ~69,594 312,488 338,670 Net earnings (excluding reduction to net recoverable cost) 8132,840 8106,658 Increase in specific prices of net utility plant 8187,581 Reduction to net recoverable cost (note H) (132,143)
Effects of increase in the general price level ~106,441 Excess of increase in the general price level over the increase in specific prices of net utility plant after reduction to net recoverable cost (51,003)
I Gain from decline in purchasing power of net amounts owed (note C) 38,801 Net ~612,202 34
Public Service Company ot New Mexico and Subsidiaries Five Year Comparison of Selected Supplementary Financial Data Adjusted for Effects of Changing Prices Years ended December 31 1984 1983 1982 1981 1980 gn thousands of average 1984 dollars except per share amounts)
Current cost information:
Net earnings excluding reduction to net recoverable cost 8 106,658 $ 119,786 $ 90,460 $ 98,253 $ 67,612 Earnings per common share S 2.36 $ 2 87 $ 2 26 $ 3 63 8 283 Excess of increase in general price level over increase in specific prices after reduction to net recoverable cost S 51,003 $ 46,097 $ 49,461 $ 133,120 $ 153,161 Net assets at year-end, at net recoverable cost S1,005,019 $ 985,610 $ 943,345 $ 768,684 $ 586,931 General information:
Purchasing power gain on net amounts owed S 38,801 8 36,981 8 45,417 8 94,673 $ 109,779 Cash dividends declared per common share 8 2.85 $ 2.93 $ 2.98 $ 3.06 $ 2.57 Market price per common share at year-end 8 24.04 $ 26.01 $ 27.66 8 26.25 $ 23.78 Consumer price index for all urban consumers:
Average 311.1 298.4 289.1 272.4 246.8 Year-end 315,5 303.5 292.4 281.5 258.4
~ A Depreciation and amortization a@usted for changing prices usting historical cost income statement items for general inflation, changes were made only to the provision for depreciation and amortization. All other revenue and expense items were considered to reflect the current average price level for the year.
Estimated utility plant was determined by applying the indices specified to the historical cost of utility plant by vintage year. Depreciation expense was then determined for the adjusted amounts of utility plant by applying the same rates used
~ to compute the historical amount of depreciation.
Note B Reduction to net recoverable cost Under the ratemaking prescribed by the regulatory commissions to which the Company is subject, only historical cost of plant is recoverable in revenues as depreciation and amortization. Therefore, the excess of the cost of plant, stated in terms of current cost over the historical cost of plant, is not presently recoverable in rates as depreciation and
~ amortization, and is reflected as a reduction to net recoverable cost. While the ratemaking process gives no recognition to the current cost of replacing property, plant and equipment, the Company believes it wBl be allowed to earn on the increased cost of its net investment when replacement of facilities actually occurs.
Note C Gain from decline in purchasing power of net amounts owed During periods of inflation, the holders of monetary assets suffer a loss of general purchasing power because such items will purchase less at a future date. Alternatively, holders of monetary liabilities such as long-term debt experience a gain
~ because the amount of money required to ultimately settle the liabilities represents dollars of diminished purchasing power.
Since the Company owed net monetary liabilities during a period in which the general purchasing power of the dollar declined, the Company experienced an economic gain in purchasing power. All assets and liabilities other than utility plant and amounts applicable to the cumulative preferred stock not subject to mandatory redemption requirements were treated as monetary items.
35
Public Service Company of New Mexico and Subsidiaries Quarterly Operating Results Operating Operating Net Earnings Quarter Ended Revenues Income Earnings per Share December 31, 1984 8110,838 832,527 834,602 8 .80 September 30, 1984 126,922 51,072 44,749 1.10 June 30, 1984 109,574 31,600 25,413 .56 March 31, 1984 97,994 31,295 28,076 .65 December 31, 1983 94,479 30,497 18,761 .38 September 30, 1983 107,227 39,589 40,349 1.03 June 30, 1983 93,217 30,277 49,578 1.33 March 31, 1983 102,551 35,884 31,831 .80 In the opinion of management of the Company, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for such periods have been included.
Stock/Dividend Data Common Stock:
Range of sales prices of the Company's common stock, reported as composite transactions (Symbol: PNM), and dividends paid on common stock for fiscal year 1984 and 1983, by quarters, are as follows:
Range of Sales Prices Dividends High Low Per Share Fourth Quarter, 1984 25 1/4 22 80.72 Third Quarter, 1984 22 3/4 19 1/2 0.71 Second Quarter, 1984 24 1/4 20 3/8 0.71 First Quarter, 1984 26 5/8 23 0.71 Fiscal Year 26 5/8 19 1/2 82.85 Fourth Quarter, 1983 29 5/8 22 3/4 80.71 Third Quarter, 1983 28 3/4 25 7/8 0.70 Second Quarter, 1983 28 7/8 26 3/4 0.70 First Quarter, 1983 28 25 1/2 0.70 Fiscal Year 29 5/8 22 3/4 82.81 Cumulative Preferred Stock:
While isolated sales of the Company's cumulative preferred stock have occurred in the past, the Company is not aware of any active trading market for its cumulative preferred stock.
Quarterly cash dividends were paid on each series of the Company's cumulative preferred stock at their stated rates during 1984 and 1983.
36
Stockholder Information Annual Meeting of Stockholders Stockholder Communications Duplicate Mailings The annual meeting of stockholders of To notify the Company of change of Sometimes stockholders receive additional Public Service Company of New Mexico address, lost certificates, or to request mailings of annual and quarterly reports.
will be held at the Kimo Theatre, 419 transfer of stock to another name, please The Company is required by law to mail to Central Avenue, N.W., Albuquerque, New write to: each name on the stockholder list. If a Mexico, on Tuesday, April 23, 1985, at 9:30 husband, wife, and child each own stock Public Service Company of New Mexico Lm. Stockholder Services in his/her own name, reports will be sent Alvarado Square to each. Since the quarterly and annual Stockholders are urged to attend; however, Albuquerque, New Mexico 87158 reports are sent with either dividend checks whether or not they attend, their proxies or proxies, it is not possible at this time for should be mailed to the Company. A PNM to eliminate duplicate mailings.
To request transfer of stock please write to:
proxy statement and form of proxy wBI be mailed to stockholders on or about March Common Stock Dividend Reinvestment Plan 18, 1985. Public Service Company of New Mexico Stockholder Services During 1984, the number of stockholders For copies of the Compariy's Form 10-K Alvarado Square in the Shareholder Dividend Reinvestment Albuquerque, New Mexico 87158 filed with the Securities and Exchange Plan increased by 4/37 to 29,978. Divi-Commission, please contact D. E. Peckham, Harris Trust Company of New York dends and cash invested through the Secretary, Public Service Company of New Corporate Trust Department, 9lh Floor Dividend Reinvestment Plan during the Mexico Alvarado Square Albuquerque, NM 110 William Street last eight years by shareholders now total New York, New York 10038 87158 (505) 848-2842 $ 152.2 million. Under present law, stock-Preferred Stock holders can defer reinvested dividends of Stock Exchange Listing Public Service Company of New Mexico up to $ 750 annually ($ 1,500 for a joint Alvarado Square return) from income on their federal returns.
Albuquerque, New Mexico 87158 This law will be in effect until December on stock of the Company is listed New York Stock Exchange under the 31, 1985. A prospectus describing the Questions and Comments Dividend Reinvestment Plan and an enroll-PNM.
ment form are available by writing to the Questions and comments about PNM or Registrar of Stock Company, or telephoning (505) 848-2122 any information appearing in the annual (local calls), 1-800-432-4494 (New Mexico),
report and quarterly reports are welcome or 1-800-545-4425 (outside New Mexico).
First National Bank in Albuquerque and may be directed to:
Post Office Box 1305 Albuquerque, New Mexico 87103 Public Information:
Harris Trust Company of New York Corporate Trust Department, 9th Floor Gayland Bryant 110 William Street Director, Public Information New York, New York 10038 Alvarado Square Albuquerque, New Mexico 87158 (505) 848-2746 Stockholder Information:
Karen Knight Director, Slockhotder Services Alvarado Square Albuquerque, New Mexico 87158 (505) 848-4538 Financial Questions:
Vaierie C. Cheeseman Director, Investor Relations Alvarado Square Albuquerque, New Mexico 87158 (505) 848-4673 37
Directors and Officers Board of Directors PNM Corporate Gas Company of New Mexico J. P. Bundrant" J. D. Geist J. T. Ackerman President, Ekctric Operations Chairman and President President and ChiqfOperating Ogicer Public Service Company qfNew hfexfco J. B. Mulcock, Jr. Gas Operations A. B. Collins, Jr. Senior Vice Presufent, O. L. Slaughter President Corporate Affairs and Senior Vice Presuient, Reddy Communications, inc Assistant Secretary Distribution Albuquerque, Nhf A. J. Robison J. J. Ruiz J. D. Geist" Senior Vice President District Vice President Chairman and President and Ch'Financial Ogicer Public Service Company qfNew hfexico W. J. Real R. B. Rountree District Vice President C. E. Senior Vice Presiderrt and Leyendecker'hairman qf the Board and Chairman, hfeadoue Resources, Inc. and T. D. Rister ChfqfExecutive Ogicer Sunbelt Mining Company, Inc. District Vice Presidertt United New hfexico Bank at hfimbres Valley M. A. Clifton D. A. Pickel Demi ng, Nhf Vice President, District Vice President A. G. Ortega Financial Planning T. A. Coers Attorney at Law B. D. Lackey 1Nstrict Vice President, Ortega 4 Snead, P. A. Vice President and Transrntss ton Albuquerque, Nhf Corporate Controller G. D. Mische R. R. J. K. Murphy 1Nstrict Vice President, qfhfanagerrumt Rehder'rqfessor Vice Presutent, Regulatory 7AMsmfssum Robert O. Anderson Graduate and Business Policy School qfhfanagernent M. H. Lambert University qfNew hfexfco P. J. Archibeck Vice President, Albuquerque, Nhf Treasurer and Assistant Pipeline Operatr'ons Secretary J. C. Wyman R. B. Rountree Senior Vice President Public Service Company qfNew hferico R. H. Stephens'resMmt Stephens-Irish Agency, Inc D, E. Peckham Secretary and Assistant Treasurer',
L, Hitchins, Jr.
Assistant Secretary and Assistant Treasurer Vice President, Gas Supply D. W. McFearin Vice President, Controller and Assistant Secretary
~ o Las Vegas, Nhf E. R. Wood~~ M. J. Marzec D. J. Davis Vice President and Geneml hfanager Assistant Treasurer Vice President and Ch'Engineer, Hbod Zc HillCorporation Distribution Santa Fe, Nhf E. R. Corliss H. L. Galies, Jr. Vice President and ChiefEngineer, Director Emeritus Tlansmfssum Chairman qfthe Board Galles Chevrolet Company Albuquerque, Nhf
'Member qfAudit Committee "hfember qf Executive Committee 38
PNM Electric Electric Division Managers PNM Subsidiaries J. P. Bundrant L, G. Boyce R. B. Rountree President and ChieJ'Operating Ojffcer Division hfanager, Chairman, hfeadows Clayton Resources Inc.
C. D. Bedford Chairman and Presfdent, Senior Vice President, C. L. Edwards Sunbelt hfining Gnnpany, Inc.
Planning, Finance and Division hfanager,
~ Administration Belen J. F. Jennings, Jr.
Presufent and Chf@Operatfng 0+icer, W. M. Eglinton E. L. King hfeadows Resources, Inc Senior Vice President, Division hfanager, Operations Benmlitto C. E. Hunter Vice President and J. L. Wiikins A. R. Lujan General hfanager, Senior Vice President, Division hfanager, Sunbelt hfining Company, Inc Power Supply Las Vegas J. L, Godwin J. R. Sloan T. D. Bauer Vice President, Vice President, Power Production Division hfanager, Sunbelt hfining Company, Inc and hfanager, San Juan Station Sangre de Cristo lVater Ca W. M. Hicks, Jr. M. C. Slota R. C. Rankin Vice President, Vice President, Energy hfanagement Division hfanager, Inc Santa Fe hfeadows Resources, R. A, Lake C. A. Underwood
~ Vice President, F. M. Van Gundy Vice President, Operations Services Division hfanager, Paragort Resources, Inc M. A. McDonald Deming Vice President, ffuman Resources J. H. von Rusten Controller, and Support Service hfeadows Resources, Inc, and R. F. Mershon Sunbelt hfining Company, Inc Vice Pres fdertt, al Division Operations M, H. Maerki Vice President, orse hfeadows Resources, Inc esident, Atbuquerrtue Division Operations R. M. Wilson Assistant Controller 39
Regional Electric System Map
'. i+
- LJQ 1 ~
%a r,, *-,~
'-A'EVgai -~l JF~TFQ "T LANDSATSATELLITE PHOTOGRAPH SCALE: 1: 4,560,300
/r I
/ UTAH COLORADO NEW MEXICO I NEVADA 0lEN CANYON ~ I SAN JVAN
~ FARLNNOTON rr I ~ TAOS lAS VEOAS4 FOV R CORNERS
~ OJO TEXAS I
McCVLLOVOH KLOORAOOr
~~ ' HOOVER MEAO MOENKOPI rAq q OATON MCIQNLEY ~ LASVEOAS MSROM
~ ~ OALLVP SERNAIJLLO MOHAVE FLACK'TATF ~ CHOllA
~ ORAN S A STATION EIP UNE OAVIS ~g
~ ~~ ~ AldVOVEROVt COIIONAOO ESCAlANTE WEST MESA ~ CLOVIS
~ dELEN dlACKWATEA CALIFORNIA SPRI OEAVlllt ~
LOS ANOEltd OEVEAS PARKEA WEST WINO 'I I A PEAK PINNACLE I II
~ PHOENIX I US ESTY SllvEA KINO I IMPtRIAL KTRKNE l
~ SAN OIKOO VAllKT VERVE I.
OAKtNLKE I LVSSOCK AMRAO
~ TVCSON ARROTO SAOVARO OEMINO s A= 4 lAS VAIL HILOAOO CAVCES ~
I~A ~
SOOTH NEWMAN El PASO MAJOR ELECTRIC TRANSMISSION LINES EXISTING PROPOSED 345 kV snd Above Owned by PNM 230 kV snd Below Owned by PNM 345 kV snd Above Owned by PNM snd Others 230 kV snd Above Owned by Others 115 kV Not Shown
~ Generstlon X Switching Ststlon %Cities snd Town 40
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"Our enduring goals are to help preserve an irreplaceable way of life and to enhance it through new opportunities."
J.D. Geist CP 'N AND PRESIDENT, PUBLIC SERVICE COMPANY OF NEW MEXCO
'
Photography Index Quote Source Index ver: Laura Gilpin, 1946 Front cover: D.H. Lawrence, "Song of a Man Who has mon Caner Museum, Come Through," in Collected Poems D.H. Lawrence
, Texas (New York: Viking Press, 1964 London; Lawrence Pollinger Ltd.).
Page 4: John K. Hillers. Circa 1880 Page 4: N. Scott Mornaday, "The Monoliths,"
Courtesy Andrew Smith Gallery, fn The Gourd Dancer (New York:
Albuquerque, New Mexico Harper & Row, 1976).
Page 6: Edward S. Curtis. 1904 Page 6: Willa Cather, The Prolessor's House
~ ~ Albuquerque, Counesy Andrew Smith Gallery, New Mexico (New York: Random House, inc.,
Vintage Books edition, 1973).
Page 8: Paul Strand, 1932 Page 8: Keith Wilson, "A Winter Poem 1971 The Paul Strand foundation, as for New Mexico," in Retablos published ln Paul Strand: A Retrospective (Los Cerrillos, New Mexico:
Monograph, The years 1915 1968, Apeture, San Marcos Press, 1980).
Millerfon, New York Page 10: Jody Forster, 1979 Page 10: Joseph McElroy, Women and Men
'
Courtesy Andrew Smith Gallery. (New York: Knopf, 1985).
Albuquerque, iVew Mexico Page 14: William Cliff. 1978 Page 14: Rudolfo A. Anaya, Bless Me Counesy ol the artist. Ultima (Berkeley: Quinto Sol Santa Fe, New Mexico Publications, 1975).
Page 16: David Noble, 1982 Page 16: Leslie Marmon Silko, "Storytelling,"
Courtesy Scheinbaum & Russek Gallery, in Storyteller (New York:
Santa Fe, New Mexico Seaver Books, 1981).
g Courtesy Jim Page 18: Bones, 1983 Andrew Smith Gallery, Page 18: Willa Cather, The Professor's House (New York: Random House, tnc. ~
Albuquerque, New Mexico Vintage Books edition, 1973).
Page 40: Landsat map courtesy of National Geographic Society and General Electric Company Addi trbrtat color photographs by:
Dick Ruddy (Page 2: J.D. Geist. 17: Carson Natklal Forest, NM, 17: MdF plant)
Jim Fisher(Page 12, 13: EIP, near Ctovfs, NM) ett (Page 7: natural gas gathering system) ntagto(Page 5: near Acoma Pueblo, NM) t (Page 9; near Taos, NM. 11: Shiprock. NM)
PUBLIC SERVICE COMPANY OF NEW MEXCO SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Bscal year ended December 31, 1984 Commission File Number 1-6986 Public Service Company of New Mexico (Exact name of registrant as specified in its charter)
New Mexico 85-0019030 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
Alvarado Square 87158 Albuquerque, New Mexico (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (505) 848-2700 Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered Common Stock, $ 5.00 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
Cumulative Preferred Stock, $ 100 Stated Value, Comprised of the Following Series:
1965 Series, 4.58% 8.80% Series 1974 Series, 9.2% 8.75% Series 1975 Series, 10.12% 14.75% Series 8.48% Series Cumulative Preferred Stock, $ 25 Stated Value, 9.16% Series Indicate by check mark whether the registrant (1) has filed all reports required to be Bled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the'preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES X NO The aggregate market value of the voting stock held by non-aililiates of the registrant as of March 4, 1985 was $ 875,906,254.
Shares of Common Stock outstanding as of March 4, 1985 36,580,608.
DOCUMENTS INCORPORATED BY REFERENCE Portions of the following documents are incorporated by reference into the indicated part or parts of this report:
(a) Annual Report to Stockholders for fiscal year ended December 31, 1984 Parts II and IV; and (b) Proxy Statement, dated March 22, 1985, relating to the annual meeting of stockholders to be held'n April 23, 1985, filed with the Commission pursuant to Regulation 14A-Part III.
TABLE OF CONTENTS
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Page PART I Item l. Business
"'" '"
Item', 2."',Properties,,>>
' "" "'"Item'4."S'ubmission
- 3. Legal Proceedings
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.: ..'.,:.>>. <<.," .. '...',......".".. '...,"., (.....,
of Matters to a Vote of Security "Holders q
"...'.,:.
16 18 21" "
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,,Suppleme'ntal Item. Executive OIBcers of the Company ...'.......'... 2l.
PART II Item "'5.">>Market for the Company's Common Equity an'd'Related
'"""'Stockholder Matters '"'-'
22'2 Item 6.,Selected Financial Data .
Item,';7Management's Discussion and Analysis, of Financial Condition and Results of Operations ....,.....,.....-..
Item')'('8.)Financial Statements and Supplementary Datat..;,,.....-,';.
Item 9..',Disagreements on Accounting and. Financial>Disclosure, ..., 22 PART>> III ( ,:
.,"Item>>10 '>>Directors and Executive Ofiicers of the Company .-.....;>>..., "23 Item ll. (Executive Compensation.
Item 12. Security Ownership of Certain BeneBcial Owners and Management, .
"w'>> r'," " )<<(>>>>r jf(<< i
,Item 13..Certain Relationships and Related Transactions ..., 23
<<
PART;, IV <<
Item 14. ExhibitsFinancial Statement Schedules, and Reports on Form 8-K
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PART I ITEM I. BUSINESS e
The Company was incorporated in the State of New Mexico in 1917 and has its principal execu-tive offices at Alvarado Square, Albuquerque, New Mexico 87158 (telephone number 505-848-2700).
The Company is a public utility engaged principally in the generation, transmission, distribution and sale of electricity (see "Electric Operations" ) and, since January 28, 1985, in the gathering, trans-mission, distribution and sale of natural gas (see "Natural Gas Operations" ) within the State of New Mexico. The Company also owns facilities for the pumping, storage, transmission, distribution and sale of water.. In addition,"the Company, through its subsidiaries, is engaged in "a program of diversification into non-utility areas. "
The total population of the area served by one or more of the Company's utility 'services is estimated to be approximately 921,300, of which 51.4% live in the greater Albuquerque area.
For the fiscal year ended December 31, 1984, the Company derived approximately 98.6% of its operating revenues from electric operations and 1.4% from water operations.
Electric Operations Service Area and Potver Sales The Company provides electric service to a large area of north central New Mexico, including
~ the cities of Albuquerque, Santa Fe, Las Vegas, Belen and Bernalillo. The'Company also provides electric service to Deming in southwestern New Mexico and to Clayton in northeastern New Mexico.
As of December 31, 1984, approximately 244,000 electric customers were served by the Company. The Company has long-term franchises for electric service in the major communities in which it operates.
In addition, during 1984, the Company furnished electric service at wholesale in New Mexico to the
~
Q cities of Farmington '("1'armington") and Gallup, the United States Department of Energy ("DOE")
at Los Alamos, Texas-New Mexico Power Company ("TNP") and Plains Electric Generation &
Transmission, Cooperative, Inc.
For the years 1979 through 1984, total firm energy sales have grown at a compound annual rate of approximately 2.2%. During this same period, the Company's system peak demands in the summer and winter have grown at compound annual rates of approximately 2.7% and 3.5%, respectively, as shown in the following table:
MW PEAK DEMAND Summer Wiriterf Year Retail Wheleeele System Svstem 1979 668 187 855 774 1980 690 223 913 796 1981 749 243 992 835 1982 702 255 957 860 1983 730 268 998 880 1984 741 235 976 919 f For the winter season beginning in the year noted.
Firm sales to wholesale customers accounted for 28.9% of the Company's kWh sales for the year
,ended December 31, 1984. In addition, the Company had 6 retail customers with demands generally over 5 MW each, which accounted for 8.3% of total kWh sales during 1984.
The discussion in the two preceding paragraphs does not include contingent sales to other utilities. The most significant contingent sale contracts are those with San Diego Gas & Electric Company ("SDG&E") and Arizona Public Service Company ("APS') discussed below.
In 1979, the Company and SDGAE executed a,power sales agreement with sales beginning in 1982. The levels of sales to SDGhE through the'e'xpiration of the agreement in April 1988 may be 236 MW, 106 MW or zero at various times, dependent on 'the dates the three Palo,, Verde Nuclear "
Generating Station ("PVNGS") units commence operation. On May 1, 1982, the Company began "deliverie's of"236 MW t'o'-SDGhE'and,"'effec'tive May" 1; 1983," sales'o SDGRE"dropped'to 106 MW. O Under'the'agre'ement', 'since PVNGS 'Unit<<will not be" in 'operation by May "1,'985, such sales will
-'rop'o'zero 'on'hat"dat'e'"until'nitommeric'es""oper'ation, at'hich 'tim'e sales 'would return 'to
'106'MW 'subject t6'later ch'ange de'pending "on commencem'e'nt'f operation of PVNGS Units 2 and 3.
'Se'e discussion'"of'PVNGS'urider "Sources"of Pointer Nuclear Plant".)'The Company entered into a contingent capacity agreement with APS~on May 4, 1984, to~provide APS with'35 MW of'San Juan Unit 4 contingent capacity from May 1, 1985 through October 311985.
I
-,-fn.addition to the, firm and contingent sales discussed above, in 1984 the Company had non-firm sales, of,.l,540,630,000.kWh to other regional utilities. The most. significant of,the Company's,,current non-firm sales contracts are discussed below.
The Company entered, into a block energy agreement with APS on May 4, 1984, to provide APS with up to 110,000,000 kWh of block energy from May 1, 1985 through October 31, 1985.
The block energy agreement is being implemented under the Southwest Bulk Power Market. Experi-ment (see "Sources of Power Other Sources'-') "and thus"does not require a filing with the Federal Energy Regulatory Commission ("FERC").
...<< In mid-1983the Company began deliveries of surplus energy to TNP under an agreement which .
~
provided for, rates, of.deliveries of up to 50,MW per hour. This agreement, which was terminated by .
the, Company and,TNP, effective February 28, 1985, was replaced by a new agreement entered into on January,31, 1985, under, which, the Company will provide up to 370,000,000 kWh to TNP at rates of, delivery of,up to;,50 MW per hour during the period of March 1, 1985 through December 31, 1985, subject'to acceptance, for fling by FERC.
<<'he Company'and'S6uthwesterri'Public Service Company ("SPS") 'entered into an agr'cement on November 23', 1982,to provide fo'r a transmission interconnection between the two utilit'ies which is expected to provide the Company with greater flexibility in planning to 'meet customer needs. SPS provideselectric,service toportions of Texas, New. Mexico,.Kansas and Oklahoma. A 345 kV trans-
~ o mission line to, implement, the interconnection was placed into service, from. the Albuquerque area to tile,vicinity,of Clovis,,New.Mexico in December 1984 and,.was,the subject of a sale and leaseback tr'ansaction in February 1985. (See "Funding Requirements".) Subject to certain conditions, the interconnection agreement provides for, the sale by the Company of uncommitted energy to SPS at a rate of up to 220,MW"per h'our between 1985 and'1990: From 1991 to 1995, the Company would purchase 100 MW'of interruptibje power from SPS, and from 1995 through 2011, the Company would purchase up to 200 MW of interruptible power.
I The Companys~load forecasts indicate that the Company will have varying amounts of capacity and'ssociated energy which will not be required to serve firm retail and wholesale loads, satisfy contingent sales contract commitments or meet reserve margins during the next: decade. The New Mexico Public Service Coinmission (the "Commission" ) has approved an inventoried capacity rate-making methodologyt(see "Rates,and Regulation" ) which. is designed to move incremental base load plant into rate base in conjunction with increased load. To recover operating expenses and offset, in
'
part, carrying charges to be recorded under such methodology, the Company has contracted sales.
from its otherwise uncommitted capacity as indicated by the foregoing discussion of non-firm sales activities, Although,the<Company has been successful in contracting sales from its otherwise uncom-mitted'capacity,'significant levels of uncommitted capacity remain to be marketed after 1985.-The Com'pany"'h'as aave'rage of,.approximately 456 MW of estimated inventoried. capacity available to be sold between 1985 and 1989, beginning with 301 MW in 1985 and amounting to 579 MW in 1989.
Taking into account. present commitments, the Company has sold approximately 57% of the energy associate'd with:such iriventoried capacity for the years '1985-1989. The Compaiiy's market assessments
~ I
conclude that other southwestern and western utilities will have increasing requirements for capacity and energy through 1989. The Company's ability to sell its,remaining uncommitted capacity will be affected by transmission availability and the actual market for bulk power which develops. Addi-tionally, the actual amount of additional capacity or energy available for sale to other utilities will depend in part on the development of actual loads and determinations regarding economic reserve margins'of the Company.
Sources of Pourer The total net generation capacity of Company-owned generating facilities was 1,340 MW as of December 31, 1984, comprised of generation from two coal-Bred plants and three gas/oil-Bred plants, all located in New Mexico. This amount includes capacity committed under sales contracts with other utilities. (See "Service Area and Poiver Sales".) The three gas/oil-Bred plants, with'an aggre-gate capacity of 294 MW, are located in the Company's service area, with one in Las Vegas and two in Albuquerque, and are-mainly used for mid-range and peaking capacity requirements.
Coal-fired Plants. The San Juan plant is located near Farmington, New Mexico, and consists of four units. Units 1, 2, 3 and 4 at the San Juan plant have rated capacities. of 314. MW, 306 MW, 468 MW and 472 MW, respectively. San Juan Units 1 and 2 are owned on a 50%%uo shared basis with Tucson Electric Power Company ("Tucson" ), Unit 3 is owned on a 50% shared basis with Alamito Company, formerly a wholly-owned subsidiary of Tucson which is now publicly owned, and Unit 4 is owned 62.725% by the Company, 8.475% by Farmington,and 28.8% by M-S-R Public Power Agency ("M-S-R"), a California public power agency. The Company's aggregate ownership in the San Juan plant is 840 MW. In connection with the Company's sale to M-S-R of a 28.8% interest in San Juan Unit 4, the Company agreed to purchase under certain conditions 73.53% (approximately 100 MW) of M-S-R's capacity and associated energy through April 30, 1995, 'an amount which may be reduced by M-S-R,under certain conditions. The Comp'any also agree'd to market the remaining energy associated with M-S-R's ownership interest through April 30, 1995'in return. fo'r half the
~
Q proBts from such sales, which arrangement may be terminated by M-S-R at any time'upon 30 days notice.
The Company also owns 206 MW of capacity derived from its 13% interest in, Units 4 and,5 of the Four Corners plant located in northwestern New Mexico on land leased from the Navajo Tribe and adjacent to available coal deposits. Units 4 and 5'at Four Corners ar'e jointly owned with Southern California 'Edison Company, APS, the Salt River Project, Tucso'n and El'Paso Electric Company ("El Paso" ) an'd are operated by APS.
In December 1984, the Company signed an agreement with the County of Los Alamos ("Los Alamos") and DOE under which Los Alamos would purchase a 7.2% undivided ownership interest (approximately 34 MW) in San Juan Unit 4 and also purchase the Company's distribution system serving the community of White Rock. The aggregate purchase price is estjmated to be approximately
$ 50 million. The Company has historically served the Los Alamos area with retail service to White Rock and wholesale power to DOE. The proposed arrangement would replace the current method, of service and would include the purchase- of up to 8 MW of contingent power by the Company from Los Alamos. The transaction is scheduled to occur in the spring of 1985, subject to receiving regulatory approval. There is no assurance that closing will occur.,
The Company had previously determined that the best location in New Mexico for a mine-mouth generating. station ("New Mexico Generating Station" ) would be approximately 40 miles. southeast of the San Juan plant. On August 7, 1984, the Company, the Navajo Tribe, Bechtel Power Corporation.
and General Electric Company entered into an agreement in principle, in which the parties undertook a cooperative feasibility study of the New Mexico Generating Station. Negotiations are continuing with respect to extension and revision of the agreement in principle which expired January 31, 1985.
Since August 1984, such parties have conducted analyses to determine whether to proceed with the project. If the project proceeds, it is presently contemplated by the parties that the plant would be
'ocated within'the Navajo Reservation on land which may be acquired by the Navajo Tribe pursuant
'to 1'ederal law. It is expected that at the'utset sales from the plant would be to customers outside New Mexico.
Nuclear Plant. The Company is participating in the three 1,270 MW units of PVNGS, also known as the Arizona Nuclear Power Project, with APS, the project manager, and three other utilities and a e.
public power agency. The Nuclear Regulatory Commission (the "NRC") issued construction permits for PVNGS in May 1976. APS has reported that, as of December 31, 1984, construction of Units 1 and 2 was 99.7% complete, and construction of Unit 3 was 95.9% complete, based on construction
'man-hours exp'ended and materials installed. Testing phases follow the completion of construction.
As project'manager,'APS is responsible for maintaining schedules.
H
,The Company's 102% interest in the project will amount to approximately 130 MW per unit or,a, total of 390 MW...Through December 31, 1984, the Company had expended approximately $ 691 million for,construction of its share of the PVNGS units, including allowance for funds used during construction ("AFUDC"), and approximately $ 45 million for nuclear fuel. Based on the Company's cori'struction budget-estimates, the total. estimated aggregate cost, excluding costs of related trans-mission facilities and nuclear fuel prior to commercial operation, but including AFUDC and costs of relate'd 'pollution coiitrol-facilities, is expected to be approximately $ 938 million; resulting in an
'estimated cost "for 390 MW of approximately $ 2,405 per kW. Such estimate represents-'the Company's best current fore'cast. However, APS has adv'ised that actual completion dates, unexpected inflationary
'pressures and compliance with any additio'nal governmental procedures and regulations could cause final'costs to vary substantially from these'nd any later estimates, as could changes in the plans 'of thepaiticipants'. '"'
- I =-r In 7anuary,1985,.nuclear fuel loading was completed at PVNGS Unit. 1, which is scheduled for firm power operation by the end of 1985. Unit 2 is scheduled for fuel loading in the last quarter of 1985 and for firm power operation in the 'second quarter of 1986. Unit 3 is scheduled for fuel loading in the first quarter of 1987 and for firm power operation in the second quarter of.1987. Between fuel loading and firm power operation, each unit must undergo extensive testing. APS has indicated that- firm power operation represents the time when power from the units can be reliably scheduled for service o
to "custome'rs,"although electricity would be produced prior to the firm power operation dates.
I I','peration;of each ofthe three PVNGS units followingits completion will require the, obtaining of low'nd full power operating licenses from the NRC. An application for operating licenses has been docketed by the NRC, and the NRC staff has issued a satisfactory safety evaluation report,*,subject to certain conditions, and a favorable final environmental statement on such application. Hearings on an inteivenor's p'etition were concluded in 1982, and the Atomic Safety and Licensing Board (the "ASLB")
issued a favorable initial'decision rejecting the int'ervenor's contentions. Such initial decision was reviewed and 'aifirmed'by the NRC appeal board. After such hearings had been concluded, an entity representing parties who farm in the vicinity of PVNGS petitioned the ASLB to reopen the hearings to 'c'onsider an environmental issue related to salt emissions associated with the plant's cooling sys-tem: By an order issued in"'December 1982, the ASLB denied the petition 'as to Unit 1, but granted the petition as to Units 2 and 3. APS has requested that the hearing be delayed indefinitely, but. the outcome of the reopened proceedings relating to'Units 2 and 3 and their impact" on additional construction expenditures cannot currently be predicted.
."'In December 1984, the NRC granted a facility operating license for Unit 1. Certain pre-operational and'start-.up tests and other items are required to be completed to the satisfaction of the NRC. The license initially allows operation of Unit 1 at up to 5% of its capability, which may not be exceeded without specific NRC approval. With NRC approval, the power output of Unit 1 may be gradually increased to 100%%uo of its capability.
'ther Sources. The. Company is also interconnected with various utilities making possible mutual assistance in emergencies,and economy energy interchange. The Company participates in the Inland
Power Pool from which the Company anticipates economic benefits resulting from reduced operating
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reserve requirements, enhanced bulk power electric system reliability and increased efficiency of
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operations, 0 ~
In 1983, the Company entered into an experimental arrangement called the Southwest Bulk
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Power Market Experiment with El Paso, Farmington, SPS, APS and the Salt River Project. The experiment allows certain kinds of energy transactions to occur with only limited regulatory oversight and provides for modified FERC rate treatment. The agreement implementing the experiment was accepted by FERC on December 30, 1983, at which time the rates contained in the agreement were approved by FERC. The agreement became effective on January 1, 1984, for a two-year term, with certain options for the participants to terminate participation earlier. A block energy agreement has been entered into with APS under this arrangement. (See "Seroice Area and Potuer Sales".)
Fuel anti Water Supply The percentages of the Company's generation of electricity fueled by coal, gas and oil, and the average costs to the Company of those fuels (in cents per million BTU) during the past five years were as follows:
Coal Gas Oil Percent of Average Percent of Avcragc Pcrccnt of Average Gcncration Cost Generation Cost Gcncration Cost 1980 ... 84,0% 79.lg 15.9% s 243.6ij! 0.1%
4 33LSg 1981 ... 85.9 89,5 14.1 281,2 392.9 1982 ... 95.0 101.3 4,4 350.8 0.6 292,0 1983 ... 99.3 97.1 0.6 407.8 0.1 330.9 1984 .. ~ 99.7 108.7 0.1 451.8 0.2 290.9
~ 4 Less than 0.01%
The estimated generation mix in 1985 is 98.9% coal and 1.1% gas and oil. Although not included in the planned generation mix, it is expected that start-up and test energy will be available from PVNGS in 1985. Due to locally available natural gas and oil supplies and the utilization of locally available coal deposits, the Company believes that adequate sources of fuel are available for its generating stations.
Coal. The average cost of fuel for the years 1982, 1983 and 1984 at Four Corners was 7L6g, 79.6'!
and 84.2'!, respectively, per million BTU ($ 12.70, 914.18 and $ 14.77 per ton, respectively) including ash disposal and land reclamation costs. The average cost of fuel, including ash disposal and land reclamation costs, for the San Juan plant for the years 1982, 1983 and 1984 was 107.2<, 100.2f! and 113.6<, respectively, per million BTU ($ 2L20, 919.57 and $ 22.16 per ton, respectively).
The Four Corners plant is supplied with coal under a fuel agreement between the owners and Utah International Inc. ("Utah" ), under which Utah has agreed to supply all the coal require-ments for the life of the plant. The sulfur content of the coal to be supplied cannot exceed an average of 1.5% or a maximum of 2.5%, and to date has averaged .7%. Utah holds a long-term coal mining lease, with options for renewal, from the Navajo Tribe and operates its strip mine adjacent to the Four Corners plant with the coal supply expected to be sufficient to supply the units for their estimated useful lives. In response to indications by the Navajo Tribe that it will contest the mining lease governing the coal reserves from which Utah is currently obtaining coal for the Four Corners plant unless royalties payable to the Navajo Tribe under the lease are substantially increased, Utah and the plant participants (to whom any such increases would be passed through) have negotiated agreements, which, if executed, would provide for royalty increases in return for certain contractual and other concessions from the Navajo Tribe, including an agreement by the Navajo Tribe to sell water for use in the Four Corners plant under certain circumstances if water
rights for the Four Corners plant are adversely affected. (See Item 3-"Legal Proceedings".) Any collection of the "possessory interest tax" and the "business activity tax" enacted by the Navajo Tribe (see Item 3 "Legal Proceedings" ) could also increase Utah's coal costs. The fuel agreement provides for certain adjustments in coal prices due to increases or decreases in the cost of electricity, environmental compliance (including mine reclamation), labor, materials, supplies, taxes and e.
royalties.
The coal requirements for the San Juan plant are being supplied by San Juan Coal Company
("SJCC'), a wholly-owned subsidiary of Utah, from certain I"ederal, state and private coal leases under a coal sales agreement, pursuant to which SJCC will sell processed coal for operation of the'an Juan plant until 2017. Utah has, guaranteed theobligations of SJCC under the agreement, which contemplates the delivery of approximately 168 million tons of coal during its remaining term. Such amount would supply the requirements of the San Juan plant through approximately 2017.
Such supply is dependent in part upon the successful development of approximately 2,843 acres of coal leases (one Federal and two private) held by SJCC in the La Plata area of northwestern New Mexico located approximately 25 miles northeast of the San Juan plant. An amendment to the coal sales agreement, as well as a transportation agreement among San Juan Transportation Company, a wholly-owned subsidiary of Utah, the Company and Tucson, were executed in April 1984. These agreements provide for the development of a mine to produce coal from the La Plata leases and transportation of such coal to the San Juan plant. Deliveries are expected to begin in 1987.
Natural Gas. The natural gas used as fuel for the Company's Albuquerque electric generating plants has been supplied by Gas Company of New Mexico, which was acquired by the Company on January 28, 1985. (See "Natural Gas Operations".) The Company's cost of gas increases or decreases according to the wellhead prices. The Company has the ability to burn residual fuel oil if the gas supply is curtailed and maintains a supply of fuel oil in storage which it believes is adequate to prevent a reduction of service to its customers.
Nuclear Fuel. The fuel cycle for PVNGS is comprised of the following elements: (1) the mining and milling of uranium ore to produce uranium concentrates; (2) the conversion of uranium con-centrates to uranium hexafiuoride; (3) the enrichment of uranium hexafiuoride; (4) the fabrication of fuel assemblies; (5) the utilization of fuel assemblies in reactors; and (6) the storage of spent fuel
~ o and the disposal or (if future circumstances permit) the reprocessing thereof. The participants in PVNGS are parties to a contract with Anaconda Minerals Company for a quantity of uranium concentrate anticipated to be sufficient to supply the initial cores for Units 1, 2 and 3, the first reload for each of Units 1 and 2 and mo'st of the first reload for Unit 3, deliveries of which are complete. In addition, certain participants, including the Company, have entered into contracts with Energy Fuels Exploration Company, Western Nuclear, Inc. and Pathfinder Mines Corporation, which are more than sufficient, if certain options are exercised, to meet operational requirements through 1998. The fuel fabrication contract with Westinghouse Electric Corporation referred to below also gives the partici-pants options to obtain their uranium requirements for the period 1993 through 1997 and 1998 through the expiration of the contract. Spot purchases of uranium in lieu of any which might be obtained pur-suant to contract options will be made as appropriate.
The participants have contracted with Allied Corporation for'onversion services required through 1987. Contracts have also been entered into with Combustion Engineering, Inc. for the fabrication of fuel assemblies required for the first two years of operatioi. of each of the three PVNGS units and with Westinghouse for the fabrication of fuel assemblies required for approximately the next 15 years of operation of each such unit. Contracts have been entered into with DOE for necessary enrich-ment services required for the lifetime operation of the three units. The participants presently have no commitments for reprocessing of fuel discharged from reactors. PVNGS is designed to permit on-site storage of spent fuel discharged from normal operation of all three units beyond the year 2000. Federal legislation imposes the responsibility for the disposal of spent nuclear fuel and other high level wastes upon the Federal government and directs the Secretary of DOE to
undertake a program for the development of a waste disposal facility for the receipt and disposal of spent nuclear fuel not later than 1998. The requirements of the legislation are such that the participants were obligated to enter into a contract with DOE prior to the receipt of operating licenses for PVNGS for the disposal of the spent nuclear fuel discharged therefrom. The participants entered into such a.contract in July 1984, which provides for the eventual disposal of all spent nuclear fuel expected to be generated by PVNGS Units 1, 2 and 3 during their useful lives.
I Water. Water for the Four Corners and San Juan plants is obtained from the San Juan River.
(See Item 3 "Legal Proceedings".) Utah holds rights to San Juan River water and has com-mitted a portion of such rights to the Four Corners plant. The Company and Tucson have a contract with the United States Bureau of Reclamation for consumption of 16,200 acre feet of water per year for the San Juan plant, which contract expires in 2005, and in addition have been granted the authority to consume 8,000 acre feet per year of water under a state permit that is held by Utah. The Company is of the opinion that sufficient water has been secured for the San Juan plant until 2005.
It is anticipated that water necessary for the operation of the PVNGS units will be obtained from sewage elHuent under contracts with certain municipalities in the area. The contracted quantity of effiuent exceeds the amount required for the three PVNGS units. The validity of the major effiuent contract was challenged in a suit filed by the Salt River Pima-Maricopa Indian Community against the Department of the Interior, the Federal agency alleged to have jurisdiction over the use of such effiuent. The PVNGS participants, including the Company, were named as additional defendants.
The United States District Court for the District of Arizona dismissed the lawsuit as to the Company and certain others for lack of standing, which decision was reversed in September 1984 by the Ninth Circuit Court of Appeals. The Company and such others filed a petition with the United States Supreme Court in December 1984 seeking review of the Ninth Circuit decision, which petition was denied in March 1985. In November 1982, certain operators of farms located in the vicinity of the PVNGS site filed a lawsuit in Maricopa County Superior Court claiming prior rights to effiuent
~ to be delivered to PVNGS under the primary and secondary effiuent contracts. On December 12, 1983, an owner of land in the river basin from which the effiuent to be received under the primary contract is alleged to be derived filed a complaint in the United States District Court for the District of Arizona challenging the primary efHuent contract and seeking, among other things, to enjoin its performance. APS has joined with the Salt River Project in bringing an action in an Arizona state court against the plaintiffs in the latter two lawsuits, seeking a declaratory judgment as to rights to efHuent under Arizona law. Such declaratory judgment action has been consolidated in the Arizona state court with the lawsuit which was filed in November 1982.
The Company has been informed by APS that, although the foregoing matters remain subject to further evaluation, APS expects that neither the described litigation nor any renegotiation of existing contracts will have a materially adverse impact on the completion, licensing and operation of PVNGS.
Natural Gas Operations Acquisition of Neia Mexico Natural Gas Properties On January 28, 1985, the Company acquired substantially all of the New Mexico natural gas utility assets of Southern Union Company ("Southern Union" ) (principally a natural gas retail distri-bution system operated by Southern Union as the Gas Company of New Mexico division and herein-after referred to as "GCNM"), and Sunbelt Mining Company, Inc. ("Sunbelt" ), a wholly-owned subsidiary of the Company, acquired all of the stock of Southern Union Gathering Company
("Gathering Company" ), a wholly-owned subsidiary of Southerii Union (such assets and stock being hereinafter collectively referred to as the "New Mexico Gas Properties" ), in connection with the settle-ment of antit'rust litigation against Southern Union. (See Item 3-"Legal Proceedings".) The approval of FERC is still pending with respect to the Company's acquisition of one minor transmission line which is not material to the operation'f the New Mexico Gas Properties. If authorized, the Com-pany willpurchase such transmission line at a later date.
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The New Mexico Gas Properties were purchased from Southern Union for their net book value (which gives effect to an assumption of operating liabilities) of $ 224,326,000 and less $51.5 million representing the amount of the settlement to all plaintiffs in the litigation. Such amount represents the preliminary purchase price which is subject to final adjustments within 75 days from closing to refiect actual values at the closing date. As discussed below, the $ 51.5 million settlement amount is being funded by the Company by payments to the other plaintiffs and refunds to the Company's electric customers. An initial cash payment of $ 74,460,000 was made by the Company to Southern Union at closing. Two promissory notes of the Company secured by a first mortgage lien on the properties acquired by the Company were also delivered at the closing, one in the amount of
$ 50,690,000 due January 27, 1986 and one in the amount of $ 40,203,000 due January 27, 1987. Both notes bear interest at 8% per annum. Sunbelt acquired all of the stock of Gathering Company for a cash payment at closing of $ 7,473,000.
As part of the settlement, the Company was to fund $ 35,650,000 of the total $51.5 million settle-ment amount to the other plaintiffs as payment for their shares of the settlement. Of the $ 35,650,000, a cash payment of $ 15,650,000 was made at closing to the other plaintiffs, and the Company issued a promissory note to the other plaintiffs for the $ 20 million balance bearing 8% interest and due January 2, 1986. The remaining $ 15,850,000 of the settlement, less expenses, will be refunded to the Company's electric customers by the Company.
Southern Union has agreed to indemnify and hold the Company harmless from any and all occurrences and legal actions (except assumed operational liabilities) arising prior to the closing date, January 28, 1985, in connection with the New Mexico Gas Properties.
Gas Company of Neiv Menco Division The Company distributes natural gas through the GCNM division to most of the major com-munities in New Mexico, including Albuquerque and Santa Fe, serving approximately 307,000 cus-tomers as of January 28, 1985. GCNM is organized into four distribution districts along geographic lines (central, eastern, northwest and southwest), and two pipeline districts (related to the major gas-.
producing areas in the San Juan Basin in northwest New Mexico and the Permian Basin in southeast New Mexico). The central district, comprised primarily of Albuquerque, accounts for approximately 51% of GCNM's total customers. The distribution of GCNM customers by customer class (indicated as a percentage of sales volume) is as follows: residential (35%); industrial (28%); commercial (18%); public authority (15%); irrigation (3%); and resale customers (1%).
The Company holds non-exclusive franchises with varying expiration dates in all incorporated communities where it is necessary to do so in order to carry on its gas utility business as it is now being conducted. The expiration dates for the Company's franchises in Albuquerque and Santa Fe are 1998 and 1995, respectively.
Gathering Company Gathering Company is engaged in the ownership, leasing and operation of gas gathering facilities in the San Juan Basin, and sale of that gas under long-term contracts to GCNM and to El Paso Natural Gas Company ("EPNG"). Gathering Company also engages in other off-peak sales of gas from sources located in the San Juan Basin and the Permian Basin.
Gathering Company has a contract with EPNG under which EPNG purchased approximately
.7 billion cubic feet ("Bcf') of gas in 1984, Under this contract, originally entered into during 1953, EPNG has a preferential first right to purchase all gas gathered by Gathering Company through certain gathering systems in the San Juan Basin in excess of GCNM's needs. The contract continues through June 30, 1985, and from month-to-month thereafter unless terminated by either party on 30 days written notice. In the first two months of 1985, EPNG purchased approximately 5.9 Bcf of gas from Gathering Company.
In addition, Gathering Company has entered into a number of gas sales contracts for the sale of gas in excess of GCNM's and EPNG's current needs. Gathering Company sold approximately 23.9 Bcf of gas under these excess sales contracts in 1984. Such sales of excess gas, during off-peak periods, enable the Company to compete more effectively for gas supplies through higher load factor volume purchases and to better ensure that peak-day requirements of GCNM can be met.
Gas Supply and Prices Approximately 85% of GCNM's gas requirements in 1984 came from direct purchases at the wellhead under long-term contracts, from field gathering systems (including those of Gathering Company) and from gas processing plants. The remainder was purchased primar'ily under long-term contracts from interstate pipeline companies. The Company does not.anticipate any material change in the makeup of such sources nor any significant problems in meeting the requirements of its high priority customers in its service area during the next few years.
The direct field purchases (which include wellhead purchases and purchases from field gathering systems) of both interstate and intrastate natural gas is made from supply sources located in northwest (the San Juan Basin) and southeast (the Permian Basin) New Mexico and such purchases provide approximately 77% of GCNM's gas requirements.
The prices paid for wellhead purchases of natural gas are generally subject to price regulation under the Natural Gas Policy Act of 1978 (the "NGPA"), which established a series of maximum lawful prices for various categories of both interstate and intrastate natural gas. The base prices under the NGPA are subject to monthly adjustments.
Certain of the Company's purchases of intrastate natural gas in New Mexico are also subject to price regulation under the New Mexico Natural Gas Price Protection Act (the "NMPPA") which provides for ceiling price regulation for intrastate gas in New Mexico. These ceiling prices are generally lower than the price levels which would otherwise be applicable under the NGPA. The NMPPA will terminate June 30, 1985.
Because of current market conditions and because of certain matters alleged by the Company in the antitrust litigation against Southern Union (see Item 3-"Legal Proceedings" ), the Company is presently engaged in renegotiations of wellhead purchase contracts. This renegotiation is also the subject matter of an agreement between the Company and other plaintiffs in such litigation.
Supplemental Gas Supplies r
The Company owns and operates an underground storage facility located near Albuquerque for the storage of natural gas and withdrawals therefrom during peak usage periods. At January 28, 1985, approximately 1.2 Bcf of gas was included in the inventory of this facility.
Under a gas injection agreement with a group of unafFiliated producers conducting a gas pressure maintenance program for secondary oil recovery, the Company has the right to inject up to 25,000 Mcf of gas per day into a unitized oil field located near Artesia, New Mexico. Subject to the terms of the gas injection agreement, the Company has the right, during each semi-annual calendar period, to take redelivery of up to one-third of the volume of the gas injected by it during the last semi-annual calendar period in which it injected gas. Further, there are provisions for withdrawal of all recoverable volumes with advance notice to the operator. At January 28, 1985, the Company had an inventory of approximately 3.2 Bcf of gas stored under the agreement.
The Company is a party to various FERC-approved transportation agreements to supple-ment supplies in service areas where EPNG is the Company's primary wholesale supplier of natural gas. An agreement with EPNG, as amended in 1981 and further amended in 1983, provides that up to 50,000 Mcf per day of system gas may be transported between the companies'arious service territories when needed. In addition, agreements with other companies provide for the transportation of up to 8,000 Mcf of gas per day from sources located in southeast New Mexico to augment gas supplies for the Company's service areas in and around Clovis, Portales and Tucumcari, New Mexico.
Utility Construction Program The Company is continuing a construction program which is intended to meet future customer service requirements. The Company estimates its five-year utility construction program for the million, including AFUDC of $ 171 million. Included in period 1985-1989 to be approximately $ 836 such total amount are proposed expenditures during the five-year period of approximately $ 71 million for the Company's share of nuclear fuel for PVNGS and approximately $ 113 million of gas utility construction expenditures which will be required as a result of the Company's acquisition of the New Mexico Gas Properties. Utility construction expenditures, including AFUDC, were approximately
$ 278 million in 1984, and are forecasted to be $ 261 million and $ 201 million in 1985 and 1986, respectively. The Company's utility construction expenditures are expected to dedine to $ 134 million in 1987, $ 117 million in 1988 and $ 123 million in 1989.
A summary of the Company's utility capital expenditures program, including AFUDC, for the period 1985-1989 follows:
(In millions)
Electric Construction PVNGS Units 1, 2 and 3 $ 259 Other Generation 76 Nuclear Fuel 71 Pollution Control on Existing Facilities . 18 Total Generation . 424 Transmission 75 Distribution and General 221 Total Electric, .
720
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Gas Construction Natural Gas Production 10 o Transmission 39 Distribution 53 General ll Total Gas .. 113 Water Construction ...,.....,......,,,
Total Utility, $ 836 The above-estimated capital expenditures program represents the Company's most current fore-cast. Such program does not include the acquisition cost required in connection with the Company's acquisition of the New Mexico Gas Properties. (See "Natural Gas Operations".)
The Company conducts a continuing review of its construction program, and such program and the above estimates are subject to periodic revisions based upon changes in assumptions as to system load growth, rates of infiation (including costs of labor), the availability and timing of environmental and other regulatory approvals, the availability and costs of outside sources of capital and changes in project construction schedules. The Company has in the past revised its construction budget in light of such factors and will effect further revisions in the future.
'I Funding Requirements The Company estimates its total external funding requirements to be approximately $ 388 million for the period 1985-1989, including $ 309 million required for long-term debt repayments, mandatory preferred stock redemptions and repayment of notes issued in connection with the acquisition of the New Mexico Gas Properties. Estimates of external funding requirements give effect to the implementa-tion of the inventoried capacity ratemaking methodology. (See "Rates and Regulation".) The Company 10
will defer carrying charges associated with specifically identifiable uncommitted generating capacity as allowed by the Commission. On the basis of the current load growth projections and resulting levels of inventoried capacity, the gross amount of such carrying charges for 1985 through 1989 is projected to be approximately $ 354 million before applying applicable revenues from power and energy sales from inventoried plant. After giving effect to the application of revenues from inventoried plant, the Company projects that the inventoiied capacity ratemaking methodology will defer approximately 9203 million of net carrying charges during the period 1985-1989. (See "Electric Operations Service Area and Pouter Sales".) Such. amounts will be recovered through charges to customers over the useful life of the property as such capacity is required for such customers.
The Company's projection of internal cash generation in the 1985-1989 time period assumes timely and adequate rate relief with respect to both retail and wholesale customers and assumes that the Company will sell significant amounts of additional uncommitted capacity or energy not currently contracted Eor, and that revenues from such sales will be sufficient to offset significant amounts of depreciation and property tax expenses for which the Company is at risk according to the inventoried capacity methodology. (See "Electric Operations Service Area and Power Sales" and "Rates and Regulation".) Under such methodology, and based on the Company's current load forecasts, total at-risk costs Eor the period 1985-1989 are estimated.to be approximately 8150 million. After giving effect to presently contracted sales from inventoried capacity, the Company projects that at-risk costs not recovered would be approximately $ 30 million for such period. Taking into account the Company's expected ability to make additional sales, the Company projects that such amount would be Further reduced significantly. The projection also assumes that the Company's non-utility subsid-iaries will provide their capital requirements from internally generated funds and from indepen'dent borrowings which would be non-recourse to the Company.
In 1984, the Company issued $ 65 million of its First Mortgage Bonds, 13Vs% Series due 1994, and utilized approximately 815 million of proceeds From various pollution control financings. The Company
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Q also utilized short-term borrowings and generated approximately $ 48 million from its Common Stock plans. The Company issued $ 77,045,000 principal amount of its first mortgage bonds on September 28, 1984 to secure its guarantee in connection with the crossover refunding effected on October 1, 1984 with the proceeds of the outstanding City of Farmington, New Mexico 5.9% Pollution Control Revenue Refunding Bonds, Series 1977 (Public Service Company of New Mexico San Juan Project).
In December 1984, the Maricopa County, Arizona Pollution Control Corporation issued $ 38.5 million principal amount of its pollution control revenue bonds, the proceeds of which were loaned to the Company. Of the $ 38.5 million, $ 23 million were 1984 Series A Annual Tender Bonds sold in a public offering and secured by the Company's first mortgage bonds, and 815.5 million were 1984 Series B Bonds sold as a private placement on an unsecured basis.
In February 1985, the'ompany completed a sale-leaseback financing of the transmission inter-connection between the Company and SPS (see "Electric Operations Service Area end. Power Sales" ) through the sale to institutional investors by the Company of such facilities and the concurrent
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lease to the Company of those facilities.
The Company's interim financing requirements are met through issuance of notes payable to banks and commercial paper. The bank commitments for the Company and its subsidiaries consist of both lines of credit and revolving credit'greements ranging in duration from one to six years.
Arrangements for bank lines of credit amounted to $ 21 million and revolving credit arrangements amounted to $ 255 million at March 15, 1985.
In order to meet its 1985 external capital requirements of $ 195 million, the Company proposes to issue common stock and/or preferred stock and to utilize short-term borrowings and approximately
$ 61 million of proceeds from various pollution control financings,'The Company also expects to generate approximately $ 46 million from its Common Stock plans.
The foregoing requirements take into account the proposed sales in 1985 to Los Alamos of the White Rock distribution system and an interest in San Juan Unit 4. (See "Electric Operations Sources of Power".)
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Rates and Regulation The Company is subject to the jurisdiction of the Commission with respect to its retail electric rates, water rates, gas rates, service, accounting, issuance of securities, construction of new generating and transmission facilities and other matters. FERC has jurisdiction over rates and other matters related to wholesale electric sales and over Gathering Company's operations.
A stipulation was agreed upon in November 1984 by a majority of the members, including the Company, of a task force created by the Commission to evaluate the merits of the inventoried capacity ratemaking concept, and was subsequently approved in its entirety by the Commission on Decem-ber 12, 1984. Inventorying is a ratemaking methodology designed to move incremental base load plant into the New Mexico jurisdictional rate base in conjunction with increased New Mexico jurisdictional load. The actual amount of plant to be inventoried pending inclusion in rate base would be determined annually and is defined as the New Mexico jurisdictional share of that base load plant most recently placed in service which is above a historical 20% reserve margin.
The stipulation permits the capitalization of certain carrying charges associated with inventoried plant. Fixed operation and maintenance expenses associated with inventoried plant will be included in the New Mexico jurisdictional rate base on a current basis. In addition, the stipulation (l) limits the capitalization of carrying charges to an amount equal to 5% per year of the inventoried plant's book value, which limit decreases to 4% over an ll-year period, (2) applies revenues from sales from inventoried plant, to the extent available, first to the payment of fuel expenses and other variable operation and maintenance expenses, second to the payment of up to half of the depreciation and property tax expenses and third to.the pro rata payment of remaining depreciation and property tax expenses and capitalized carrying charges and (3) provides that the inventorying methodology can only be altered on a prospective basis. (See "Funding Requirements".)
This inventorying methodology will become effective on July 1, 1985, at which time 99 MW of San Juan Unit 3 and 202 MW of San Juan Unit 4 will be inventoried. The Company anticipates that the PVNGS units will also be inventoried upon achieving commercial operation. The order also allowed the Company in December 1984 to record capitalized carrying charges of approximately
$ 2.9 million, which were refiected in 1984 earnings, A group of consumers, including a dissenting member of the task force, filed an appeal on March 1, 1985 with the New Mexico Supreme Court. The outcome of the appeal and its effect on inventorying cannot currently be predicted.
The second phase of a rate increase granted in April 1984 by the Commission became effective on February 1, 1985 and is designed to increase revenues by $ 7.5 million annually based upon 1982 data.
On August 28, 1984, the Company filed a request with the Commission to increase its retail electric rates to provide for $ 76 million of additional annualized revenues. The filing was adjusted on January 31, 1985, to refiect the Commission's approval of the inventorying stipulation. The inventory adjustment lowered the requested revenue increase to 845 million on an annualized basis. Data used in the filing are based on a historical test-year period which ended March 31, 1984, adjusted for known and measurable changes which are expected to occur through May 1985. A decision by the Commission on the proposed increase is expected in August 1985. As a result of the approved inven-torying stipulation, 75% of any Commission-granted increase will become effective with bills rendered September 1, 1985, and the remaining 25% will become effective with service rendered January '1, 1986.
On April, 18, 1983, the Commission issued an order initiating an investigation regarding the reasonableness of the retained economic interest payments incurred as part of the cost of coal for the San Juan plant. (See Item 2-"Properties".) In its order, the Commission indicated that the ultimate issues to be determined in the investigation are whether or not the retained economic interest pay-ments constitute a legitimate cost at a reasonable level to be passed on to the Company's New Mexico jurisdictional ratepayers and whether the ratepayers or the shareholders are entitled to the gain resulting from the sale of the interest in the San Juan Coal Trust. Hearings have been scheduled by the Commission to begin in late 1985.
The Commission has joined with the utility regulatory bodies of Texas, Arizona and California in
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. sponsoring an independent audit of PVNGS management and constru bodies have selected the accounting firm of Ernst 6 Whinney to be pany has agreed to fund up to $ 510,000 of the costs of the audit. The th'e9 costs. The regulatory o, manager. The Com-imp'ui'p'if audit on the Company or, on the operation of PVNGS cannot currently be predicted.
any, of the proposed 4
The Company has fuel adjustment clauses covering all kWh sales. There is an approximate 60 day time lag in implementation of the fuel adjustment clause for billing purposes, except for FERC jurisdictional customers for which there is an approximate 30 day time lag.
GCNM's retail gas rate schedules contain purchased gas adjustment clauses which permit GCNM to adjust its rates as the cost of purchased gas changes. There are no material proceedings currently pending before the Commission with respect to GCNM.
Gathering Company has filed a petition with FERC for a declaratory order to the effect that Gathering Company may sell surplus gas not taken by EPNG without having to obtain a certificate of public convenience and necessity from FERC or an abandonment authorization.
On January 21, 1985, the Commission granted a 6L6% increase allowing $ 3.3 million of additional annualized revenues for Sangre de Cristo Water Company, the Company's water system division in the Santa Fe area. The increase is being implemented in three phases, the first with bills rendered January 25, 1985, the second with service rendered April 1, 1985, and the third with service rendered October 1, 1985. A notice of appeal has been filed by the City of Santa Fe, and the Company has cross-appealed. (See "Water Operations".)
Environmental Factors The Company, in common with other electric and gas utilities, is subject to stringent regulations for protection of the environment by both state and Federal authorities, particularly in regard to permissible emissions from its coal-fired generating stations. Capital expenditures for pollution control facilities at the Four Corners and San Juan plants were approximately $ 9 million in 1984, excluding AFUDC. Based on the Company's most recent construction" forecasts for such facilities, capital expen-ditures for pollution control facilities at the Four Corners" and San Juan plants are estimated to approximate $ 8 million in 1985 and $ 2 million in 1986, excluding AFUDC. In addition, the Company has made, and will continue to make, expenditures for pollution control facilities at PVNGS. Capital expenditures for pollution control facilities at PVNGS have been approximately $ 59 million through 1984, excluding AFUDC. For 1985, the Company estimates capital expenditures for pollution control facilities at PVNGS to be approximately $ 1 million, excluding AFUDC. A portion of the costs for pollution control facilities at PVNGS has been financed through the issuance of pollution control revenue bonds. (See "Funding Requirements".) Except for such additional equipment for Four Corners Units 4 and 5, which are operated by APS, as may be required or permitted by the Clean Air Act Amendments of 1977, or by the sulfur emission permit system of the Navajo Tribe, if ulti-mately upheld (see Item 3 "Legal Proceedings" ), the Company does not believe that any material additional pollution control equipment, other than as already contemplated and included in its construction program, will be required under the applicable environmental laws for its existing facili-ties. However, the costs of pollution control equipment may be higher than presently forecast.
PVNGS is subject to the jurisdiction of the NRC, which has authority to issue permits and licenses and to regulate nuclear facilities in order to protect the health and safety of the public from radio-active hazards and to conduct environmental reviews pursuant to the National Environmental Policy Act. The NRC has issued construction permits for PVNGS Units 1, 2 and 3 and an operating license for Unit 1. Before PVNGS Units 2 and 3 can become operational, operating licenses from the NRC will be required. (See "Electric Operations Sources of Pouter".)
Except as noted below, existing generating units of the Company are in substantial compliance with all presently effective state and Federal air and water pollution control regulations.
13
Air Quality The State of New Mexico has adopted emission regulations restricting the emissions from both existing and future coal, oil and gas-fired plants. Regulations adopted by the State of New Mexico are in some instances more stringent than those adopted by the 1'ederal Environmental Protection Agency ("EPA"). The New Mexico Environmental Improvement Board (the "NMEIB") has
~.
adopted regulations that prohibit emissions of sulfur dioxide, particulates and nitrogen oxides above certain levels. These apply to "existing sources", including San Juan Unit 2 and Four Corners Units 4 and 5, and "new sources", which include San Juan Units 1, 3 and 4.
APS, operating agent for the Four Corners plant, has for some time been engaged in regulatory and legal proceedings in New Mexico in regard to the necessity for further sulfur dioxide control at the Four Corners plant. Adversaries of APS in such proceedings have included environmental groups and certain state authorities. On August 21, 1980, those adversaries and the Four Corners participants reached a settlement that required achievement of a specified level of control of Four Corners sulfur dioxide emissions from Units 4 and 5 by December 31, 1984. Installation of equipment to achieve this level of control was completed in 1984, with the Company's share of construction expenditures being approximately $ 31 million. APS has advised the Company that operation of the equipment has resulted in the level of control required by the settlement.
The New Mexico regulation for nitrogen oxides is extremely stringent. Four Corners Units 4 and 5 have operated under variances from this regulation, granted by the NMEIB, since December 1, 1977. The current variance will expire on the earlier of May 13, 1985 or the development of control technology. APS has advised the Company that APS intends to petition the NMEIB for an extension of the current variance.
The Federal Clean Air Act Amendments of 1977 may require installation of "the best available retrofit technology" on existing sources located near certain federally protected areas, in which visibility is an important attribute. The installation is to occur as expeditiously as practicable, and in any event, within approximately five years after revision of the applicable state implementation plan. The full significance of the visibility provisions to the Company's generating stations is difil-cult to predict pending finalization of state and Federal implementing regulations. The Company believes that the equipment currently installed at the San Juan plant will be in compliance with
~ o anticipated regulations.
Water Quality The Company's National Pollutant Discharge Elimination System ("NPDES") permit from EPA for the San Juan plant, which has a term of five years beginning March 20, 1984, generally prohibits all off-site discharges of pollutants. The San =Juan plant water management system, which was phased into operation during 1983 and the first quarter of 1984, is designed to enable compliance with the NPDES permit, as well as with other state and Federal water standards and regulations.
On October 26, 1983, the United States, at the request of the EPA Administrator, filed a civil action in the United States District Court for the District of New Mexico for assessment of civil penalties of up to $ 10,000 per day of violation for alleged discharges on an unspecified number of days from the San Juan plant in violation of the Clean Water Act. The complaint also seeks to enjoin the Company against future violations. The Company and the United States have signed a consent decree.
that has been lodged with the District Court. The Federal government has yet to respond formally to the public comments received during the public comment period which ended on December 26, 1983.
The Company understands that allegations of personal injury and property damages were made during the public comment period. The consent decree, as presently drafted, requires the Company to pay the sum of $ 50,000 for all past reported violations of its NPDES permit, prohibits the discharge of pollutants to navigable waters except as a'uthorized by an efFective NPDES permit, settles the 14
issues raised in the complaint and provides for the court to retain jurisdiction to enforce the provisions of the decree for two years from the date of entry. Under the terms of the proposed consent decree, agreement thereto is not to be construed as an admission of a violation by the Company.
A group of residents near the San Juan plant gave notice dated August 30, 1983, of their intention to file a citizens'uit as provided for in the Clean Water Act for alleged past violations at the San Juan plant. On November 10, 1983, the Company received from substantially the same group of residents a copy of a motion 'to intervene in the above-described suit by the United States. The motion and an accompanying proposed complaint object to the terms of the above-described consent decree. The intervenors'omplaint alleges "hundreds of violations" of the Clean Water Act and asks the court to disapprove the consent decree, to have a trial on the merits, to assess the Company penalties of $ 10,000 for each day of violation, and to permanently enjoin the Company from future violations. The court granted the motion to intervene on July 16, 1984. A tentative settlement has since been reached, under which the intervenors would withdraw their objection to the consent decree.
On April 13, 1984, six of such intervenors filed suit against the Company in the San Juan County District Court claiming damage to property and personal injuries resulting from "discharges of wastewater and pollutants" from the San Juan plant into a nearby arroyo. The plaintiffs seek a total of $ 6 million in compensation for their alleged damages and injuries, a total of $ 3 million as punitive damages, and injunctive relief. A tentative settlement agreement has been reached, whereby the plaintiffs would dismiss the lawsuit.
Water Operations The Company's water system in the Santa Fe area accounted for approximately 1.4% of operating revenues in 1984. In 1981, the water operations were reorganized as a division separate from the Company's electric operations. This division, the Sangre de Cristo Water Company, is headquartered in Santa Fe. The Company and the City of Santa Fe have studied the feasibility of the City acquiring the water system. A joint negotiating committee has recommended the adoption of a letter of principles
~ which, if adopted by the City and the Company and subject to required approvals, would provide for such acquisition by the end of 1985.
Non-Utility Subsidiary Operatioris Sunbelt Mining Company, Inc. was incorporated in 1979 for the purpose of acquiring, developing and marketing coal and other mineral resources and to provide related contract mining services for both the Company and independent regional customers. Sunbelt operates the De-Na-Zin/Gateway mine in northwestern New Mexico, which provides coal under contract to SJCC and is capable of supplying coal throughout the southwest regional market as opportunities develop. In addition to its coal properties, Sunbelt's interests include leases of chemical-grade limestone in Cibola County, New Mexico. In February 1984, Sunbelt purchased all of the stock of a company engaged in the gold mining business for approximately $ 2 million. On January 28, 1985, Sunbelt acquired all of the stock of Gathering Company. (See "Natural Gas Operations".)
In 1981, the Company formed Meadows Resources, Inc. ("Meadows" ) to engage in business ventures that have no connection with the utility business. Meadows'irst such venture was a partner-ship called Bellamah Community Development ("BCD") with Dale Bellamah Land Company, Inc.
(such partner now being Bellamah Associates, Ltd., a New Mexico limited partnership). As of December 31, 1984, BCD owned approximately 12,000 acres of land throughout the Southwest for future commercial and residential development. As of December 31, 1984, Meadows'nvestment for its 50% interest in BCD was approximately $ 54 million. In addition, Meadows has a note receivable from BCD of approximately $ 9.1 million.
On December 22, 1983, BCD entered into the Mountain Creek joint venture to acquire and develop approximately 4,200 acres of land in Dallas, Texas, of which more than 3,600 acres have been acquired. BCD's share of Mountain Creek's net profits is approximately 52%.
15
Another Meadows venture involves the operation of a medium density Bberboard manufacturing plant near Las Vegas, New Mexico. In May 1982, Meadows entered into a joint venture agreement with Frontier Fiber, inc. (which has since been merged into Ponderosa Products, Inc. ("Ponderosa"))
creating a joint venture known as Montana de Fibra. Ponderosa acts as operating manager of the plant. In October 1984, Meadows purchased substantially all of the Bxed assets of the joint venture in a sale-leaseback transaction. The lease is for an initial period of 10 years, renewable under varying conditions for four additional 10-year lease periods and includes the right to purchase the plant at the end of each lease period at its then fair market value. The plant went into commercial operation in late 1984. The venturers incorporated the joint venture on January 2, 1985, into Montana de
'ibra, Inc., with Ponderosa owning 10% and Meadows owning 90% of the new corporation.
C Meadows continues its venture capital investment programs, As of December 1984, a total of approximately $8 million was invested in three venture capital funds and eight start-up companies.
Meadows and the shareholders of Bellamah Holding Company ("BHC"), the corporation which controls Bellamah Associates, Ltd., anticipate entering into an agreement to form MCB Finan-cial Group, Inc., to be owned 50% by Meadows and 50% by the shareholders of BHC. BHC shareholders would contribute all of the shares of BHC, and Meadows would contribute a 31%
interest in BCD and the assets leased to Montana de Fibra, Inc. The transaction is expected to have no operational impact on BCD.
The Company's non-utility investment program for the 1985-1989 period is projected to be approximately $ 136 million. The Company's equity investment in its non-utility subsidiaries, Sunbelt and Meadows, at December 31, 1984 was $ 20.7 million and $ 142.7 million, respectively. Although it is projected that the non-utility subsidiaries will provide a substantial portion of their capital require-ments from internally generated sources, to the extent that external Bnancing may be required, such borrowings will be made independently by the subsidiaries from third-party sources and will be non-recourse to the Company.
Employees At December 31, 1984, the Company and its subsidiaries employed 2,979 people. Of these, 1,098 are covered by a collective bargaining agreement with the International Brotherhood of Electrical Workers which expires May 31, 1986, and 36 by a collective bargaining agreement with the Inter-national'Union of Operating Engineers which expires on December 31, 1986. As of January 28, 1985, the closing date of the acquisition of the New Mexico Gas Properties, GCNM had 1,182 employees
~ o and Gathering Company had 44 employees. Of these, 112 employees are covered by collective bargaining agreements with two unions, which agreements expire in May and September 1986.
ITEM 2. PROPERTIES As of December 31, 1984, the total net generation capacity of the Company's owned generating facilities was 1,340 MW. The Company's thermal electric generating stations as of December 31, 1984 were as follows:
Nct MW Gcncrating Typo Name Location Capacity Coal San Juan(l) WaterQow, New Mexico 840 Coal Four Corners(2) Fruitland, New Mexico 206 Gas/Oil Reeves Albuquerque, New Mexico 169 Gas/Oil Person Albuquerque, New Mexico 105 Gas/Oil Las Vegas Las Vegas, New Mexico 20 1,340(3)
(1) San Juan Units 1, 2 and 3 are 50% owned by the Company; San Juan Unit 4 is 62.725% owned by the Company.
(2) Four Corners Units 4 and 5 are 13% owned by the Company.
(3) Excludes approximately 6 MW of diesel capacity at Clayton, New Mexico which could be used for supplying the town in an emergency.
16
The Four Corners plant and a portion of the facilities adjacent to the San Juan plant are located on land held under easements from the United States and also under leases from the Navajo Tribe, the enforcement of which might require Congressional consent. The risk with respect to the enforcement of these easements and leases is not deemed by the Company to be material. How-ever, the Company is dependent in some measure upon. the willingness and ability of the Navajo Tribe to protect these properties and to honor its commitments. The San Juan plant is located on private land owned by the Company and Tucson.
On December 31, 1984, the Company's electric transmission system, including jointly-owned lines, consisted of 246 circuit miles of 46,000 volt lines, 5 circuit miles of 69,000 volt lines, 628 circuit miles of 115,000 volt lines, 180 circuit miles of 230,000 volt lines, 1,529 circuit miles of 345,000 volt lines (including a 216 circuit mile transmission line which has since been sold and leased back by the Company) and 45 miles of 500,000 volt lines. The distribution systems consisted of 4,404 miles of overhead lines and approximately 1,786 cable miles of underground lines (excluding street lighting).
The Company owns 228 substations having an aggregate transformer capacity of 9,115,970 kVA of which approximately 2,345,100 kVA is step-up transformer capacity at generating stations.
The property of GCNM consists primarily of natural gas gathering, storage, transmission and distribution systems. The gathering systems consist of approximately 1,200 miles (approximately 360 miles of which are leased to Gathering Company) of pipe with compression and treatment facilities. The storage systems are described above. (See "Natural Gas Operations Supplemental Gas Supplies" under Item 1-"Business".),The transmission systems consist of approximately 1,200 miles of pipe with compression facilities. The distribution system consists of approximately 6,400 miles of pipe. The property of Gathering Company consists primarily of natural gas gathering systems containing approximately 550 miles of pipe with compression facilities.
The Company also owns service and oSce facilities in Albuquerque and in other operating divisions throughout its service territory, The Company's water property consists of wells, pumping and treatment plants, storage reservoirs and tr'ansmission and distribution mains. (See "Water Opera-tions" under Item 1-"Business".)
Substantially all of the Company's utility plant is pledged to secure its first mortage bonds. The natural gas utility assets acquired by the Company from Southern Union are also subject to a first mortgage lien securing two promissory notes of the Company issued in connection with the acquisi-tion. (See "Natural Gas Operations Acquisition of Nero Mexico Natural Gas Properties" under Item 1- "Business".)
The Company leases a major transmission line and associated equipment, data processing, com-munication, office and other equipment, office space, utility poles (joint use), vehicles and real estate.
Certain leases, primarily for data processing equipment, are capital leases. All other leases are operating leases.
Meadows holds nine State of New Mexico coal leases covering 5,101 acres in Catron County, New Mexico. In addition, Sunbelt holds four State of New Mexico coal leases covering 1,600 acres in Catron County and jointly holds, with Salt River Project, eight state coal leases covering 3,499 acres in Catron County, New Mexico. No exploration or resource evaluation has yet been undertaken on any of the Catron County leases.
Paragon Resources, Inc. ("Paragon" ), a wholly-owned subsidiary of the Company, holds an undivided one-half interest in three Federal and two state coal leases comprising approximately 5,282 acres, located approximately 40 miles southeast of the San Juan plant and in the vicinity of the proposed site for the New Mexico Generating Station. An exploration program was conducted on the leases held prior to the exchange discussed in the next sentence in an eEort to define coal reserves on such leases, and it was estimated that approximately 87 million tons of coal with an average sulfur content of less than 1% were recoverable by surface mining operations on the leases. One of the three Federal leases was obtained in September 1984, through an exchange with the Bureau of Land Management ("BLM")for a siinilar leasehold, as authorized by an Act of Congress, which is expected to result in an overall increase of three million tons of recoverable coal.
17
In December 1982, Meadows acquired approximately 43,500 acres of mineral properties in the vicinity of the proposed New Mexico Generating Station site for $ 9 million, of which $ 4 million was paid at closing, with the balance payable in five equal annual installments. Of the total, approximately 41,000 acres are coal properties consisting of one Federal coal lease, ten Federal preference right coal lease applications ("PRLAs") and five state coal leases. Approximately 3,000 acres of mineral properties consist of state general mining leases, which overlap to some extent the area covered by coal leases.
Such acquisitions are subject to approval by the BLM with respect to Federal properties. It is contemplated that the leases and PRLAs, when converted into leases, may be a source of coal supply for the proposed New Mexico Generating'Station as well as for other markets. In addition, Sunbelt holds state coal leases covering 1,560 acres in the area from which it is currently mining coal to Bll contractual obligations to SJCC and for sale to regional consumers.
Sunbelt holds additional mineral interests. (See "Non-Utility Subsidiary Operations" under Item 1-"Business".) The Company currently anticipates that all mineral leases of Meadows and Paragon will be assigned to Sunbelt.-
Paragon provides services for the Company's utility operations. It also maintains land and water I
rights for future power plants by operating or by leasing and managing farms and ranches. Under New Mexico law, water rights must be put to beneficial use or revert to the public. Therefore, Paragon operates or leases those farms and ranches to maintain water rights for the future.
Western Coal Co. ("Western" ), a jointly-owned subsidiary of the Company and Tucson which has now been liquidated, formerly held a retained economic interest under the sublease from Western to Utah covering various Federal, state and private leases at the surface coal mine which is the primary source of coal for the San Juan plant. (See "Electric Operations Fuel and Water Supply" under Item 1 "Business".) On November 30, 1981, in the completion of its liquidation, Western assigned all of its interest under the sublease to the Bank of America National Trust and Savings Association, as Trustee of the San Juan Coal Trust, of which the Company and Tucson were initially the sole beneficiaries. Thereafter, pursuant to a Participation Agreement dated as of Decem-ber 31, 1981, the Company sold 37.512% of its interest in the San Juan Coal Trust to institutional investors for $ 30 million, resulting in an after-tax gain of approximately 918.8 million. On May 17, 1982, all of the Company's remaining interest in the San Juan Coal Trust was transferred to a trust
~ o with Meadows as the sole beneficiary. This remaining interest was sold to institutional investors on June 30, 1983, for $ 38.7 million, resulting in an after-tax gain of approximately $ 24.1 million.
ITEM 3. LEGAL PROCEEDINGS San Juan Rioer Adjudication. In 1975, the State of New Mexico Bled an action entitled State of Neie Mexico o. United States, et al., in the District Court of San Juan County, New Mexico, to adjudicate all water rights in the "San Juan River Stream System". The Company was made a defendant in the litigation in 1976. The action is expected to adjudicate water rights used at the Four Corners and San Juan plants and at Santa Fe. (See "Electric Operation" Fuel and Water Supply" under Item 1 "Business".) The Company cannot at this time anticipate the effect, if any, of any water rights adjudication on the present arrangements for water at the San Juan and Four Corners plants, nor can it determine what effect the action will have on water for Santa Fe. It is the Company's understanding that no final resolution of the case can be expected for several years.
Four Corners Litigation. The Navajo Tribal Council has enacted three resolutions asserting taxing and regulatory authority on the Navajo Indian Reservation which affect the Four Corners plant. One such resolution, purports to impose, as of January 1, 1978, a "possessory interest tax" on the value of natural resources on land leased by the Navajo Tribe; another purports to impose a "business activity tax" effective July 1, 1978. These taxes would also extend to Utah, the contract supplier of fuel for the Four Corners plant, and it is anticipated that any increased cost to Utah resulting from payment of the taxes would be passed on to the participants. The third resolution, to be effective following affirmative action by the Secretary of the Interior (the "Secretary" ), purports to establish 18
a sulfur emission permit system which would require participants in the 1'our Corners plant to pay a "sulfur emission fee". If validly imposed, the fee would appear to be in an amount that would economically justify an attempt to remove more sulfur dioxide from emissions at the Four Corners plant than required by Federal and state law, in order to minimize the fee. Although none have yet been made, any payments of taxes or fees to the Navajo Tribe prior to the conclusion of legal proceedings will be under protest to the extent possible.
In September 1981, the Navajo Tribal Council's advisory committee adopted a resolution expressing the intent of the Navajo Tribe to honor tax waiver provisions in its lease agreements with the Four Corners participants. If binding upon the Navajo Tribe and not withdrawn'y subsequent Navajo Tribal action, this resolution would render the two taxing resolutions'inapplicable to the Four Corners plant and its coal supplier. The advisory committee's resolution was apparently adopted with a view toward intensifying negotiations to increase the royalties payable to the Navajo Tribe by the coal supplier, which increase, by agreement, would be passed through to the participants, including the Company. (See "Electric Operations Fuel and Water Supply" under Item 1 "Business".)
In April 1978, the Four Corners participants filed suit in the United States District Court for the District of New Mexico contesting the action taken by the Navajo Tribe. The District Court dis-missed the claims relating to the Navajo Tribe's sulfur emissions resolution on the grounds that such resolution was not yet effective. In 1984, however, the Navajo Tribe informed the District Court that its expressed intent to honor the tax waiver provisions in the Four Corners plant lease agreement did not extend to certain taxes upon the coal supplier to that plant. The District Court has stayed the proceedings relating to the Navajo Tribe's two taxing resolutions pending a decision, expected later this year, by the United States Supreme Court in its review of a Ninth Circuit Court of Appeals case involving other parties which specifically addresses the taxing power of the Navajo Tribe. The District Court has also noted the relevance of a decision by the United States Supreme Court in January 1982 involving other parties which upheld the authority of Indian tribes to impose taxes upon non-Indian
~ . businesses under certain circumstances and a decision by the Tenth Circuit Court of Appeals in August 1983 involving other parties which upheld the authority of the Navajo Tribe to impose taxes upon non-Indian businesses pursuant'to the two resolutions referred to above. In view of the September 1981 resolution of the Navajo Tribal Council's advisory committee, the Navajo Tribe has requested dismissal of the participants'awsuit. Although the participants have informed the District Court that this result is acceptable to them, the effect of such r'esolution on any further assertion with respect to tribal taxing authority'as not been determined.
'n addition to the Navajo Tribal action, the United States De'partment of the Interior cited in the late 1970s provisions in the Four Corners plant site lease pursuant to which representatives of the participants and the Department are to meet periodically to review technological advances in air pollu-tion control equipment and mutually decide upon the feasibility of installing additional equipment. The Department has taken no further action in this regard, but if it determined to do so, the partici-pants would contend that, with the intervening enactment of the Clean Air Act, these review functions have lapsed and have been merged into EPA.
Antitrust Litigation against Southern Union and Others. In 1981, the Company filed suit in the United States District Court for the District of New Mexico against Southern Union and other defendants alleging that natural gas supply contracts entered into by the defendants constituted violations of the 1'ederal antitrust laws. Natural gas was purchased by the Company at the time from a division of Southern Union (such division having since been acquired by the Company) for use in the generation of electricity. The suit was consolidated with similar suits'filed by a class of residential gas customers of Southern Union and the State of New Mexico. Through 1983, settle-ment agreements were reached between the plaintiffs and four defendants. In April 1984, a definitive settlement agreement was reached with Southern Union, which provided, among other things, for the purchase by the Company of substantially all of the New Mexico gas utility assets of Southern Union. In an order filed on August 1, 1984, Chief Judge Sherman G. Finesilver, United States District 19
Judge for the United States District Court for the District of Colorado, approved a Stipulation and Agreement of Settlement providing for the final settlement of the proceedings assuming the consum-mation of said purchase, which occurred on January 28, 1985. (See "Natural Gas Operations Acquisi-tion of Neio Mexico Nntural Gas Properties" under Item 1 "Business".)
O.
Western Coal Tnx Assessment. By letter dated August 17, 1984, the District Director of the Internal Revenue Service for the Albuquerque District (the "IRS District Director" ) sent a Notice of Deficiency (the "Notice" ) to Western alleging additional Federal income taxes due from Western.
By a second letter of August 17, 1984, the IRS District Director alleged that the Company has a liability for the tax deficiency as a transferee. (See Item 2-"Properties".) On November 13 and 14, 1984, petitions were filed with the United States Tax Court (the "Tax Court" ) on behalf of Western and the Company, respectively, seehng a redetermination of the alleged deficiency.
Prior to December 1, 1980, the coal requirements for the San Juan plant had been supplied by Western from certain Federal, state and private coal leases held by Western, which were mined by Utah, as Western's contract miner. Effective in December 1980, Western subleased its leases to Utah, retaining an economic interest in the coal. Utah further subleased the leases to SJCC, and SJCC entered into a Coal Sales Agreement with the Company and Tucson pursuant to which SJCC will sell processed coal for operation of the San Juan plant until the year 2017. SJCC also purchased from Western, at Western's net book cost of approximately $ 24.6 million, certain coal processing and reclamation equipment that had been used by Western in connection with its activities on the leases. Western adopted a complete plan of liquidation and was liquidated in 1981, with its assets being distributed to the Company and Tucson.
The Notice alleges additional Federal income taxes due from Western for the 1975 and 1977-1981 tax years, in the aggregate amount of $ 122,809,131, plus interest. The Internal Revenue Service calculated the portion of the assessment for the tax year ended November 30, 1981, at $ 117,714,146.
~
Various issues are raised in the Notice, with the largest single issue relating to the proper tax treatment .e of the sublease of coal leases to Utah, which issue accounts for approximately 95% of the 1981 assessment.
The Company intends to take appropriate steps to see that the deficiency is vigorously contested in the Tax Court. At the time of filing of the tax returns in question, Western believed, on advice of counsel, that the returns were properly filed. The Company has been advised by counsel that Western has a strong defense to the position of the Internal Revenue Service regarding the tax treatment of the sublease of coal leases to Utah. The Company further is of the opinion that the aggregate assessment is far in excess of the amount, if any, that will ultimately be found due by Western for the years in question. The Company, as a former 50% shareholder in Western, has a maximum exposure of 50% of whatever tax deficiency, if any, is ultimately assessed against Western.
The Company has evaluated its exposure on the issues raised and is of the opinion that any amount eventually found to be due will have an immaterial impact on its financial statements.
Also see "Electric Ope'rations Sources of PoLer" and "- FueL and Water Supply", "Rates.and Regulation" and "Environmental Factors" under Item 1 "Business" with regard to other litigation and disputes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE COMPANY Executive oificers, their ages, offices held and initial effective dates thereof, are as follows:
Initial Effective Name hge ORce Date J. D. Geist 50 Chairman of the Board November 23, 1982 and President t
J. P. Bundrant 53 President Electric Operations February 5, 1985 J. T. Ackerman'.
43 President Gas Operations February 5, 1985 D. Bedford 44 Senior Vice President November 1, 1983 W. M. Eglinton 37 Senior Vice President May 1, 1984 J. F. Jennings, Jr. 51 President'nd Chief Operating June 15, 1983 Officer, Meadows Resources, Inc.
J. B. Mulcock, Jr. 45 Senior Vice President November 1, 1983 A. J. Robison 44 Senior Vice President November 1, 1983 R. B. Rountree 60 Senior Vice President November 1, 1983 J. L. Wilkins 61 Senior Vice President November 1, 1983 All executive oillcers are elected annually by the Board of Directors of the Company, with the exception of Mr. Jennings who is elected by the Meadows Board of Directors.
All of the above executive officers, with the exception of Mr. Jennings, have been employed by the Company and/or its subsidiaries for more than five years in executive or management positions.
For at least four years prior to his employment with Meadows in 1983, Mr. Jennings was president of Phelps-Dodge Communications Co.
PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock is traded on the New York Stock Exchange.
The following table indicates the high and low sales prices of the Common Stock of the Company reported as composite transa'ctions:
Year High Low 1984 1st Quarter 26s/a 23 2nd Quarter 2474 20s/a 3rd Quarter 22% 19%
4th Quarter 25g4 1983 1st Quarter 28 25%
2nd Quarter 28r/s 26%
3rd Quarter 28% 25~/s 4th Quarter 29s/s 22%
On March 4, 1985, there were 67,172 holders of record of the Common Stock.
The Company has paid quarterly cash dividends on its Common Stock in each year commencing in 1946 when the stock first became publicly held. Dividends per share on the Common Stock since 1980 are as follows:
1989
$ 2.04 1981
$ 2.68 1982
$ 2.77 1983
$ 2,81 1984
$ 2.85 On January 22, 1985, the Board of Directors of the Company declared a dividend of $ .72 per
~ o share of Common Stock payable February 22, 1985, to stockholders of record February 1, 1985. The payment of future dividends will depend upon earnings, the financial condition of the Company, market requirements and other factors.
ITEM 6. SELECTED FINANCIAL DATA Reference is hereby made to page 21 of the Company's Annual Report to its shareholders for the year ended December 31, 1984.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS Reference is hereby made to pages 22 and 23 of the Company's Annual Report to its shareholders for the year ended December 31, 1984.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is hereby made to pages 23 through 36 of the Company's Annual Report to its share-holders for the year ended December 31, 1984.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY Reference is hereby made to pages 2 through 4 -of the Company's Proxy Statement dated March 22, 1985 and to the Supplemental Item Executive Officers of the Company, under Part I.
ITEM Il, EXECUTIVE COMPENSATION Reference is hereby made to pages 7 through 10 of the Company's Proxy Statement dated March 22, 1985.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Reference is hereby made to pages 1 through 4 of the Company's Proxy Statement dated March 22, 1985.
ITEM 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Reference is hereby made to page 4 of the Company's Proxy Statement dated March 22, 1985.
PART IV ITEM 14. EXHIBITS, FINANCIALSTATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)-1 The following consolidated financial statements of Public Service Company of New Mexico and subsidiaries together with the auditors'eport thereon, included on pages 23 through 34'f the Annual'Report of Public Service Company of New Mexico to its stockholders for the year ended December 31, 1984, are incorporated herein by reference:
Consolidated Balance Sheet December 31, 1984 and 1983.
Consolidated Statement of Earnings Years ended December 31, 1984, 1983 and 1S82.
Consolidated Statement of Retained Earnings Years ended December 31, 1S84, 1S83 and 1982.
Consolidated Statement of Changes in Financial Position- Years ended December 31, 1984, 1983 and 1982.
Notes to Consolidated Financial Statements December 31, 1984, 1983 and 1982.
(a)-2 The following consolidated financial information for the years 1984, 1983 and 1982 is submitted herewith together with the report thereon of independent auditors:
Supplementary note to 1984, 1983 and 1S82 consolidated financial statements.
Schedule I Marketable securities Other investments.
Schedule V Property, plant and equipment.
Schedule VI-Accumulated depreciation and amortization of property, plant and equipment.
Schedule VIIIValuation and qualifying accounts and reserves.
Schedule IXShort-term borrowings.
All other schedules are omitted for the reason that they are not applicable, not required, or the information's otherwise supplied.
(a)-3 Exhibits:
The following exhibits are being filed with this report or are incorporated by reference, as permitted by Rule 12b-32 under the Securities Exchange Act of 1934, to the Registration Statement or other document with which they have been previously filed. (Asterisk denotes exhibits filed with O.
this rep'ort,)
List of Exhibits
'(3)-A Restated Articles of Incorporation of the Company, as amended.
'(3)-B Bylaws of the Company, as amended.
(4)-A Indenture of Mortgage and Deed of Trust dated as of June 1, 1947, between the Company and Irving Trust Company, as Trustee, creating First Mortgage Bonds 27/s% Series due 1977, of the Company. (Filed as Exhibit 2-C to Form 8, registration under Section 12(g), Securities Exchange Act of 1934).
(4)-B Fourteenth Supplemental Indenture dated as of December 1, 1974. (Filed as Exhibit 2-B-2 to Registration Statement No. 2-52832 of the Company).
(4)-C Agreement of the Company pursuant to Item 601(b)(4)(iii) of Regulation S-K. (Filed as Exhibit 4-C to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1983).
(10)-A Supplemental Indenture of Lease dated as of July 19, 1966 between the Com-pany and other participants in the Four Corners Project and the Navajo Indian Tribal Council. (Filed as Exhibit 4-D to Registration Statement No.
2-26116 of the Company).
(10)-B Fuel Agreement, as supplemented, dated as of September 1, 19BB between (10)-C Utah Construction & Mining Co. and the participants in the Four Corners Project including the Company. (Filed as Exhibit 4-H to Registration State-ment No. 2-35042 of the Company).
Contract between the United States and the Company dated April ll, 1968 for
~ o furnishing water. (Filed as Exhibit 5-L to Registration Statement No. 241010 of the Company).
(10)-D Co-Tenancy Agreement between the Company and Tucson Gas h Electric Company dated February 15, 1972 pertaining to the San Juan generating plant.
(Filed as Exhibit 5-0 to Registration Statement No. 2-44425 of the Company).
(10)-E San Juan Project Construction Agreement between the Company and Tucson Gas i'lectric Company, executed December 21, 1973. (Filed as Exhibit to Registration Statement No. 2-50338 of the Company).
(10)-F San Juan Project Operating Agreement between the Company and Tucson Gas 6 Electric Company, executed December 21, 1973. (Filed as Exhibit to Registration Statement No. 2-50338 of the Company).
(10)-G -Arizona Nuclear Power Project Participation Agreement among the Company and Arizona Public Service Company, Salt River Project Agricultural Improve-ment and Power District, Tucson Gas 6 Electric Company and El Paso Electric Company, dated August 23, 1973. (Filed as Exhibit to Registration Statement No. 2-50338 of the Company).
(10)-H -Amendatory Contract between the United States and the Company dated September 29, 1977 for furnishing water. (Filed as-Exhibit to Registration Statement No. 2-60021 of the Company).
List of Exhibits
-Amendments One through Four to Arizona Nuclear Power Project Participa-tion Agreement. (Filed as Exhibit (c) to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1979).
Contingent Capacity Agreement between the Company and San Diego Gas h Electric Company dated October 30, 1979. (Filed as Exhibit (a) to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1979).
Fourth Supplement to Four Corners Fuel Agreement No. 2 effective as of January 1, 1981 between Utah International Inc. and the participants in the Four Corners Project including the Company. (Filed as Exhibit (10)-BB to Annual Report of Registrant on Form 10-K for the fiscal year ending December 31, 1980).
-Accelerated Management Performance P]an of the Company dated January 1981. (Filed as Exhibit (10)-CC to Annual Report of Registrant on Form 10-K for the fiscal year ending December 31, 1980).
Service Bonus Plan of the Company dated January 1981. (Filed as Exhibit (10)-DD to Annual Report of Registrant on Form 10-K for the fiscal year end-ing December 31, 1980).
Coal Sales Agreement executed August 18, 1980 between San Juan Coal Com-pany and the Company and Tucson Electric Power Company. (Filed as Exhibit (10)-EE to Annual Report of Registr'ant on Form 10-K for the fiscal year end-ing December 31, 1980).
San Juan Unit 4 Purchase Agreement between the Company and Tucson Electric Power Company dated as of May 16, 1979 and Modifications No. 1 to San Juan Project Agreements. (Filed as Exhibit 10-T to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1981).
Amendment Number 1 to Coal Sales Agreement dated September 30, 1981 among San Juan Coal Company, the Company and Tucson Electric Power Company. (Filed as Exhibit 10-V to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1981).
-Participation Agreement among the Company, Tucson Electric Power Com-pany and certain financial institutions relating to the San Juan Coal Trust dated as of December 31, 1981. (Filed as Exhibit 10-W to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1981).
Four Corners Units 4 and 5 Capital Improvements Design and Construction Agreement between the Company and the other Four Corners Participants dated as of March 23, 1981. (Filed as Exhibit 10-X to Annual Report of Regis-trant on Form 10-K for fiscal year ending December 31, 1981).
-Amendment No. 5 of Arizona Nuclear Power Project Participation Agree-ment dated as of December 5, 1979. (Filed as Exhibit 10-Z to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1981).
Amendment No. 6 to the Arizona Nuclear Power Project Participation Agree-ment effective October 16, 1981. (Filed as Exhibit 10-AA to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1981).
-Executive Incentive Compensation Plan, effective date January 1, 1977. (Filed as Exhibit 10-BB to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1981).
List of Exhibits Participation Agreement between the Company, the Owner Trustee and the Equity Participants with respect to the leveraged preferred stock of the Com-pany dated as of December 1, 1981. (Filed as Exhibit 10-CC to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1981).
(10)-W Amendment No. 7, effective April 1, 1982, to the Arizona Nuclear Power Project Participation Agreement. (Filed as Exhibit 10-BB to Annual Report of
'
Registrant on Form 10-K for fiscal year ending December 31, 1982).
(10)-X 'Amendment No. 1, dated as of April 2, 1982, to the San Juan Contingent Capacity Agreement between the Company and San Diego Gas & Electric Company. (Filed as Exhibit 10-CC to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1982).
(10)-Y Amendment dated September 8, 1982 to Executive Incentive Compensation Plan of the Company. (Filed as Exhibit 10-DD to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1982).
(10)-Z Interconnection Agreement dated November 24, 1982, between the Company and Southwestern Public Service Company. (Filed as Exhibit 10-II to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1982).
(10)-AA San Juan Unit 4 Purchase and Participation Agreement, dated as of Novem-ber 29, 1982, between the Company and M-S-R Public Power Agency. (Filed as Exhibit 10-JJ to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1982).
(10)-BB Participation Agreement dated as of June 30, 1983 among Security Trust Company, as Trustee, the Company, Tucson Electric Power Company and certain financial institutions relating to the San Juan Coal Trust. (Filed as Exhibit 10-II to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1983).
~ e (10)-CC Amendment No. 8, effective September 12, 1983, to the Arizona Nuclear Power Project Participation Agreement. (1iled as Exhibit 10-JJ to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1983).
(10)-DD San Juan Unit 4 Early Purchase and Participation Agreement dated as of September 26, 1983, between the Company and M-S-R Public Power Agency, and Modifications No. 2 to the San Juan Project Agreements dated Decem-ber 31, 1983. (Filed as Exhibit 10-KK to Annual Report of Registrant on Form 10-K for fiscal year ending December 31, 1983).
(10)-EE Purchase and Sale Agreement, dated April 12, 1984, between the Company and Southern Union Company. (Filed as Exhibit 2 to Registration Statement No. 2-95151 of the Company).
(10)-FF, Collateral Trust Indenture dated as of February 1, 1985 among E.I.P. Funding Corporation, the Company and Morgan Guaranty Trust Company of New York, as Trustee. (Filed as Exhibit 4(a) to Registration Statement 2-95151 of the Company).
(10)-GG Lease dated as of January 2, 1985 between The First National Bank of Boston, Lessor, and the Company, Lessee. (Filed as Exhibit 4(b) to Registration State-ment 2-95151 of the Company).
List of Exhibits
.e (10)-HH
~
Participation Agreements dated as of January 2, 1985 among'.I.P. Funding Corporation, The First National Bank of Boston, Morgan Guaranty Trust Company of New York, the Company and the Owner Participant named therein. (Filed as Exhibit 28(a) to Registration Statement 2-95151 of the Company).
o(10)-II Bellamah Community Development Executive Deferred Compensation Plan.
'(10)-JJ Amendment No. 9 to Arizona Nuclear Power Project Participation Agreement dated as of June 12, 1984.
'(10)-KK Modifications No. 3 to San Juan Project Agreements dated July 17, 1984.
'(10)-LL Stipulation and Agreement of Settlement of Claims Against Southern Union.
Company and Southern Union Gathering Company in MDL Docket No. 403, dated April 12, 1984.
'(10)-MM Compensatory Agreement with Mr. James F. Jennings, Jr.
(10)-NN -Amendment No. Three to Coal Sales Agreemen. dated April 30, 1984 among San Juan Coal Company, the Company and Tucson Electric Power Company (confidentiality treatment has been requested and exhibit is not filed herewith).
'(10)-OO Amended and Restated San Juan Unit 4 Purchase and Participation Agreement dated as of December 28, 1984 between the Company and the Incorporated County of.Los Alamos.
'(10)-PP New Mexico Public Service Commission Order dated December 12, 1984, and Exhibit A thereto, in NMPSC Case No. 1804, regarding inventoried capacity.
'(13) Annual Report to St ockholders for 1984.
'(22) Subsidiaries of the Company.
'(24)-A Auditors'onsent.
'(24)-B Attorneys'onsent.
(b) Reports on Form 8-K:
A Current Report on Form 8-K, dated December 12, 1984, was Bled on January 14, 1985, reporting on (i) approval by the Commission of a stipulated agreement concerning the inventoried capacity rate-making methodology; (ii) approval by the Commission of the acquisition of the New Mexico Gas Properties; and (iii) the fling of a lawsuit challenging the acquisition of the New Mexico Gas Properties.
AUDITORS'EPORT The Board of Directors and Stockholders Public Service Company of New Mexico: O.
Under date of February 18, 1985, we reported on the consolidated balance sheet of Public Service Company of New Mexico and subsidiaries as of December 31, 1984 and 1983, and the related cons'olidated statements of earnings, retained earnings and changes in financial position for each of the years in the three year period ended December 31, 1984, as contained in the 1984 annual report to stockholders. These financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1984. In connection with our examinations of the afore-mentioned consolidated financial statements, we also examined the related supplementary note (13) and financial statement schedules as listed in the accompanying index.
In our opinion, such supplementary note and financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.
PEAT, MARWICK, MITCHELL5 CO.
Albuquerque, New Mexico February 18, 1985
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES SUPPLEMENTARY NOTE TO 1984, 1983 AND 1982 CONSOLIDATED FINANCIAL STATEMENTS (13) Supplementary Income Statement Information Taxes, other than income taxes, charged to operating expenses were as follows:
1983 198%
(In thousands)
Ad valorem ...........,, $ 8,579 $ 9,053 $ 7,282 City franchise 4,668 3,590 4,221 Payroll 3,862 3,684 3,282 Other . 2,137 ',367 1,767 Total taxes, other than income taxes, charged to operating expenses $ 19,246 $ 18,694 $ 16,552 Amortization of intangibles, royalties and advertising costs were less than 1% of revenues in each of the above periods.
PUBLIC SERVICE COMPANY OF NEW MEXICO AND.SUBSIDIARIES SCHEDULE I MARKETABLE SECURITIES OTHER INVESTMENTS Year Ended December 31, 1983 Amount at which each portfolio of equity security Number of issues and shares or each other units Market security issue principal value of carried amounts each issue in thc Name of issuer and of bonds Cost of at balance balance title of each issue and notes etch issue sheet dete sheet (Iu theuseu ds)
Time deposits and certificates of deposit(l) $ 79,505 9 79,505 8 79,505 $ 79,505 E. F. Hutton repurchase agreement 8175,191 175,191 175,287 175,191 U. S. Government and Government agency securities 9 57,787 55,237 56,154 55,237 Other(2) 9,066 9,044 9,044 Total @18,999 $ 319,990 $ 318,977 (1) No individual issue exceeds two percent of total assets.
(2) Includes 123,400 shares of non-convertible preferred stock, 2,000 shares of common stock and principal amount of $ 3,839,500 in commercial paper.
NOTE: Marketable Securities Other Investments did not exceed 10 percent of total assets at December 31, 1984 and 1982.
~ e 30
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES SCHEDULE V-PROPERTY, PLANT AND EQUIPMENT Years Ended December 31, 1984, 1983 and 1982 Balance at Other changes beginning hdditions Balance at Classification of year at cost Retirements hdd Deduct end of year December 31, 1984 (In thousands)
Utilityplant:
Electric plant in service:
Intangible 3,132 S 1,191 S 15 4,308 Production 886,218 15,244 1,231 498 808 899,921 Transmission ...,...... 163,277 85,946 172 4 50 249,005 Distribution 212,670 32,102 2,160 1 847 241,766 General 38,952 4,045 708 12 372 41,929 1,304,249 138,528 4,286 515 2,077 1,436,929 Water plant in service:
Intangible 225 225 Source of supply plant ....... 4,711 41 4,679 Pumping plant .............. 1,902 52 1,874 Water treatment plant ........ 4,058 17 6 4,069 Transmission and distribution . 21,938 1,083 78 50 22,761 General 2,072 113 81 17 2,121 34,906 1,213 165 100 35,729 Common plant in service:
Intangible 10,917 1,187 228 11,876 General 20,711 3,923 612 19 8 24,033 31,628 5,110 840 19 8 35,909 Construction work in progress .. 705,191 127,061 832,252 Electric plant held for future use. 63,355 6,293 3,980 526 65,142 Total utility plant ......., 2,139,329 278,205 9,271 634 2,936 2,405,961 Non-utility property .............. 51,600 9,056 2,270 56,524 10 114,900 Non-utility property under construction 31,050 25,137 56,187 Total property, plant and equipment ........ $ 2,221,979 $ 312,398 $ 11,541 $ 57,158 $ 59,133 $2,520,861 Description of other changes Transfers between accounts $ 56,711 $ 56,711 Transfer of expired contract deposits to plant in service . 743 Write-down of electric plant held for future use 317 Transfer of contract termination charges 462 Miscellaneous corrections and adjustments .....,., 447 900
$ 57,158 $ 59,133 (Continued) 31
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES SCHEDULE V PROPERTY, PLANT AND EQUIPMENT (Continued)
Years Ended December 31, 1984, 1983 and 1982 Balance at beginning hdditions Other changes Balance at Classification of year at cost Retirements hdd Deduct end of year December 31, 1983 (In thousands)
Utility plant:
Electric plant in service:
Intangible,........ $ 1,843 $ 784 26 $ 3,132 Production 953,887 88,453 156,093 29 886,218 Transmission 155,499 9,701 1,898 25 163,277 Distribution 184,992 30,962 3,022 107 369 212,670 General 32,942 7,126 1,038 78 38,952 Water plant in service: 1,329,163 137,026 162,077 501 1,304,249 Intangible 214 , 11 225 Source of supply plant ....,..., . 6,003 77 1,369 4,711 Pumping plant 1,911 9 1,902 Water treatment plant ........,. 4,032 63 37 4,058 Transmission and distribution ... 19,996 1,067 88 1,369 21,938 General, 1,972 143 43 2,072 34,128 1,361 168 1,369 1,784 34,906 Common plant in service:
Intangible 10,042 2,302 896 531 10,917 General . 19,725 7,375 5,994 77 472 20,711 29,767 9,677 6,890 77 1,003 31,628 Construction work in progress ...., 599,272 107,936 2,017 705,191 Electric plant held for future use .. 61,871 5,973 312 4,801 63,355 Total utility plant ., 2,054,201 261,973 171,152 2,396 8,089 2,139,329 Non-utility property ..., 43,435 13,445 8,253 3,256 283 51,600 Non-utility property under construction 1,913 29,137 31,050 Total property, plant and equipment .. $ 2,099,549 $ 304,555 $ 179,405 $ 5,652 $ 8,372 $ 2,221,979 Description of other changes Transfers between accounts $ 4,133 $ 4,133 Transfer of expired contract deposits to plant in service .... 776 Write-down of electric plant held for future use ., 2,668 Miscellaneous corrections and adjustments,..... 1,519 795
$ 5,652 $ 8,372 (Continued)
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES SCHEDULE V PROPERTY, PLANT AND EQUIPMENT (Continued)
Years Ended December 31, 1984, 1983 and 1982 Balance at Other changes hcginning Additions Balance at Cia ssiTication of year at cost Retirements Add Deduct end of year Dcccmbcr 31, 198K (In thousands)
Utilityplant:
Electric plant in service:
Intangible 1,784 74 9 i$ 14 1,843 Production 474,254 484,603 318 4,652 953,887 Transmission 137,825 17,763 82 7 155,499 Distribution 157,091 29,734 1,715 118 184,992 General .. 29,290 3,763 500 32,942 800,224 535,937 2,624 403 4,777 '1,329,163 Water plant in service:
Intangible 214 214 Source of supply plant ........ 7,735 1,053 2,785 6,003 Pumping plant 1,389 847 257 1,911 Water treatment plant ........ 5,032 '57 1,057 4,032 Transmission and distribution . 21,413 2,841 11 4,247 19,998 General 2,046 197 28 245 1,972 37,615 5,209 105 8,591 34,128 Common plant in service:
~ Intangible . 6,171 3,891 14 10,042 General 18,359 2,169 734 19,725 24,530 6,060 75 748 29,767 Construction work in progress ..... 887,100 (269,429) 18,399 599,272 Electric plant held for future use .. 7,048 36,915 17,908 61,871 Total utility plant .......... 1,756,517 314,692 2,804 18,311 32,515 2,054/01 Non-utility property ................ 60,695 22,168 1,791 31 37,668 43,435 Non-utility property under construction . 1,913 .1,913 Total property, plant and equipment........,., $ 1,817,212 $ 338,771 $ 4,595 $ 18,342 $ 70,181 $ 2,099,549 Description of other changes Transfers between accounts, $ 18,311 $ 18,311 Transfer of expired contract deposits to plant in service ......... 1,068 Disposition of utility plant 13,014 Conversion of non-utility property to utility operations .. ......,. 37,668 '1 Miscellaneous corrections and adjustments 124
$ 18,342 $ 70,181
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES SCHEDULE VI-ACCUMULATEDDEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT Years Ended December 31, 1984, 1983 and 1982 Additions Balance at Charged to Charged beginning operating to other Balance at Description of year expenses accounts Retirements Add Deduct end of year Deccmbcr 31, 1984 (In thousands)
Utility plant:
Accumulated provision for depreciation of utility plant:
Electric plant in service $ 225,733 $ 41,596 $ 931 $ 2,919 $ 31 $ 2,203 $ 263,169 Water plant in service . 5755 641 36 227 8 6 6,207 Common plant in service 4,105 688 892 394 7 6 5,999 235,593 42,925 1,859 3,540 46 2,215 274,668 Accumulated provision for amortization of intangible assets franchises and computer software 4,057 2,231 443 248 6,483 239,650 45,156 2,302 3,788 46 9,915 961,151 Retirement work in progress 447 (1,004) 1,451 Total utility plant . 240,097 45,156 2,302 2,784 46 2,215 282,602 Non-utility property ....... 3,117 1,401 288 72 4 4,298
$ 243,214 45,156 $ 3,703 $ 3,072 $ 118 $ 2,219 $ 286,900 Amortization of deferred carrying charges ....... 3,819
$ 48,975 Description of other additions and changes Depreciation and amortization of equipment charged to clearing accounts for distribution in accordance with use $ 2,302 Depreciation of non-utility property charged to other income and deductions . 1,401 Disposition of utility plant 25 66 Transfers between accounts . 93 93 Miscellaneous corrections and adjustments ......... 2,060
$ 3,703 $ 118 $ 2,219 (Continued)
.I PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES SCHEDULE VI-'ACCUMULATEDDEPRECIATION AND AMORTIZATION
',. OF PROPERTY, PLANT AND EQUIPMENT (Continued)
Years Ended December 31, 1984, 1983 and 1982 Additions Balance at Charged to Charged Other changes beginning "operating to other Description of year expenses accounts Retirements Add . Deduct of year December 31, 1983 (In thousands)
Utilityplant:
Accumulated provisions for depreciation of utility plant:
Electric plant in service $ 191,836 $ 43,946 $ 675 $ 11,421 $ 941 $ 244 $ 225,733 Water plant in service 5,371 594 31 241 5,755 Common plant in service 6,743 601 874 4,591 488 10 4,105 203,950 45,141 1,580 16,253 =
1,429 254 235,593 Accumulated provisions for amortization of intangible assets franchises and computer software .............. 2,479 2,031 443 896 4,057 20B,429 47,172 2,023 17,149 1,429 254 239,650
'etirement work in 0 progress 463 16 Total utility plant 206,892 47,172 2,023 17,165 1,429 254 240,097 Non-utility property ... 2,848 1,170 154 15 762 3,117
$ 209,740 $ 47,172 $ 3,193 $ 17,319 $ 1,444 $ 1,016 $ 243,214 Description of other additions and changes Depreciation and amortization of equipment charged to clearing accounts for distribution in accordance with use $ 2,023 Depreciation of non-utility property charged to other income and deductions . 1,170 Disposition of utility plant 490 249 Transfers between accounts 5 5 Accumulated depreciation on an acquisition . 934 Miscellaneous corrections and adjustments ... 15 762
@,193 $ 1,444 $ 1,01B (Continued)
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES SCHEDULE VI ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT- (Continued)
Years Ended December 31, 1984, 1983 and 1982 O.
Additions Balance at Charged to Charged Balance beginning operating to other at end Description of year expenses accounts Itctircmcnts Add Deduct of year December 31, 1982 (In thousands)
Utilityplant:
Accumulated provision for depreciation of utility plant:
Electric plant in service . $ 160,482 $ 32,318 $ 484 $ 2,000 $ 552 $ $ 191,836 Water plant in service .. 5,985 685 34 134 1,199 5,371 Common plant in service 5,631 431 861 48 132 6,743 172,098 33,434 1,379 2,182 552 1,331 203,950 Accumulated provisions for amortization of intangible assets franchises and computer software 962 1,531 14 2,479 173,060 34,965 1,379 2,196 552 1,331 206,429 Retirement work in progress 929 466 463 0 Total utility plant ...... 173,989 34,965 1,379 2,662 552 1,331 206,892 Non-utility property ...,...... 2,538 1,591 73 27 1,235 2,848
$ 176,527 34,965 $ 2,970 $ 2,735 $ 579 $ 2,566 $ 209,740 Amortization of property losses . 19
$ 34,984 Description of other additions and changes Depreciation and amortization of equipment charged to clearing accounts for distribution in accordance with use . $ 1,379 Depreciation of non-utility property charged to other income and deductions 1,591 Disposition of utility plant 552 1,331 Conversion of non-utility property to utility operations 1,235 Miscellaneous corrections and adjustments .....,... 27
$ 2,970 $ 579 $ 2,566 36
PUBLIC SERVICE COMPANY OF NEW MEXICO AND'UBSIDIARIES
. SCHEDULE VIII-VALUATIONAND QUALIFYING ACCOUNTS AND RESERVES Years Ended December 31, 1984, 1983 and 1982'dditions Balance at Charged to Charged Balance beginning operating to other at end of year expenses accounts Deductions of year (In thousands)
December 31, 1984 Allowance for doubtful receivables $ 1,099 $ 1,256 $ 376(a) $ 1,918(b) $ 813 Reserves for injuries and damages . 83 $ 910 $ 3(c). $ 966(d) $ 30 December 31, 1983 Allowance for doubtful receivables ....... $ 1,140 $ 1,415 $ 360(a) $ 1,816(b) $ 1,099 Reserves for injuries and damages ........ $ ~ 140 $ 479 $ 18(c) $ 554(d)
December 31, 1989 Allowance for doubtful-receivables' $ 499 $ 2,427 $ 341(a) $ 2,127(b) $ 1,140 Reserves for injuries and damages ..... 81 $ 492 $ 6(c) '439(d) 140 (a) Recoveries of amounts previously written oK (b) Uncollectible receivables written oif.
(c) Amounts received'rom insurance companies.
(d) Payments made for injuries and damages.
37
PUBLIC.SERVICE COMPANY OF NEW MEXICO AND'SUBSIDIAIUES
~ '.SCHEDULE IX'- SHORT-TERM BORROWINGS
'Years Ended December 31; 1984, 1983 and 1982 hverago hverage daily daily Weighted weighted weighted Category average Maximum amount interest of aggregate Balance interest amount outstanding rate short-term at end of rate at outstanding during during borrowings year end of year during year thc year the year (Dollars in thousands)
~,
t December 31, 1984
'Notes pay'able to banks . '8 8,004 11.62% $ 47 655 $ 29,296 '1.47%
Commercial paper .:.... $ 22,309 9.15% $ 145,635 $ 60,908 10.70%
December 31, 1983 Notes payable to banks . $ 35,280 10.44% 9 35,280 $ 18,294 10.32%
Commercial paper -...... $ 91,010 9.66% $ 107,525
-
$ 86,637 9.16%
Dcccmbcr 31, 1982 Notes payable to banks . t,...,.... $ 13,887 ~
10.19% 9, 67,003 .$ 29,882 14.39%
Commercial paper'............ $ 49,975 9.09% $ 105,225 $ 71,806 12.61%
t e e
38
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PUBLIC SERVICE COMPANY OF NEW MEXICO (Registrant)
Date: March 28, 1985 By /s/ J. D. GEIST J. D. Geist Cl>afrnmn of fhc Board and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signat r Capacity Date
/s/ J. D. GEIST Principal Executive Ofhcer March 28, 1985 J. D. Geist and Director Chairman of the Board and President
/s/ A. J. ROBISON Principal Financial Oflicer March 28, 1985 A. J. Robison Senior Vfce Presfdent, Ffnance
/s/ B. D. LACKEY Principal Accounting OiBcer March 28, 1985 B, D. Lackey Vice President and Corporate Controller
/s/ J. P. BUNDRANT Director March 28, 1985 J. P. Bundrant
/s/ A. B. COLLINS, JR. Director March 28, 1985 A. B. Collins, Jr.
/s/ C. E. LEYENDECKER Director March 28, 1985 C. E. Leyendecker
/s/ A. G. ORTEGA Director March 28, 1985 A. G. Ortega
/s/ 'R. R. REHDER Director March 28, 1985 R. R. Rehdcr
/s/ R. B. ROUNTREE Director March 28, 1985 R. B. Rountrce
/s/ R. H. STEPHENS Director March 28, 1985 R. H. Stephens
/s/ E. R. WOOD Director March 28, 1985 E. R. Wood 39
~.
UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al,= DOCKET NO STN 50-528 (Palo Verde Nuclear ~ J Generating Station, Unit 1)
EXHIBIT B TO APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO GENERAL INFORMATION CONCERNING THE FIRST NATIONAL BANK OF BOSTON
~,
General. Information Concerning The Pirst National Bank of Boston Name:
The Pirst National Bank of Boston (the "Bank" )
Address:
100 Federal Street Boston, Massachusetts 02110 Attention of Corporate Trust Division Description of business:
The Bank is a national banking association and has been for a number of years the largest commercial bank in New England.
Except for directors'ualifying shares, the Bank is a wholly-owned subsidiary of Bank of Boston Corporation ("BBC"), a bank holding company organiz'ed under Massachusetts law. Through its subsidiaries, principally the Bank, BBC is engaged in providing a wide variety of services to corporate and institutional cus-tomers, governments, individuals and other banks. These ser-vices include domestic corporate banking services, interna-tional banking services, investment and fund management ser-vices, personal banking services, trust services, and banking operations and corporate services. Through its Corporate Trust Division, the Bank provides corporate trust services to a broad range of entities.
(1) Not applicable.-
(2) Not applicable.
(3) (i) State of incorporation and principal location:
The Bank is a national banking association chartered under the National Bank Act in 1864. The principal offices of the Bank are located in Boston, Massachusetts.
(3) (ii) Names of, directors and principal officers:
The names of the directors of the Bank and BBC are set forth in Attachments A and B her eto, respectively. Information with respect to the.. officers of the Bank and BBC is set forth on pages 86 and 87 of Attachment C hereto.
(3) (iii) Neither the Bank. nor BBC is owned, controlled, or dom-inated by an alien, a foreign corporation, or a foreign government. Fur ther inf ormation relating to the U. S.
citizenship of the Bank and BBC and the directors of the Bank B-1
~ i ps
and BBC is contained in Attachments A and B hereto, respectively.
(d) (4) The Bank will serve as trustee under two or more trust agreements to be dated as of December 15, 1985, between the Bank and the respective equity investors described in the Application to which this document is attached as Exhibit B.
The trusts created by these trust agreements will (i) receive title to the interests in PVNGS Unit 1 conveyed thereto by PNM and (ii) lease such interests back to PNM, all as more fully described in said Application. Although the Bank is not legally an "agent" for or a "representative" of such equity investors, the Bank does act as trustee of the trusts of which such investors are the respective beneficiaries. Under the terms of the trust agreements the Bank is generally obligated to act upon the instructions of the relevant equity investor/beneficiary so long as such instructions are not inconsistent with the provisions of documents constituting the sale and leaseback transaction.
The Bank is without knowledge, however, concerning possible foreign ownership, control or domination of the proposed equity investors, and is thus unable to provide information with respect thereto.
(e) The Bank is not making application for a license unde>> 10 C.F.R. Part 50, or any other license available from the Nuclear Regulatory Commission.
A copy of BBC's 1984 Annual Report is attached as Attachment C hereto. Provision to the Commission of BBC's 1984 Annual Report is without prejudice to the provisions of the respective trust agreements which provide that, (i) except in certain very limited circumstances (such as the Bank's wilful misconduct or gross negligence), the Bank is not answerable or accountable in its individual capacity and (ii) that all persons (individuals, partnerships, corporations, trusts, unincorporated associations or joint ventures, governments or any departments or agencies thereof, or any other entities) having any claim against the Bank, in its capacity as trustee, by reason of any aspect of the sale and leaseback transaction (including the holding by the Bank of legal title interests in PVNGS Unit 1) shall look only to the assets held by the Bank (including but not limited to the interests in PVNGS Unit 1 and PNM's obligations under the transaction documents) pursuant to the trust agreements for payment or satisfaction of such claim.
(g) Not applicable.
(h) Not applicable.
B-2
l (i)
(j)
Not applicable.
Not applicable.
B-3
UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA, PUBLIC SERVICE COMPANY, et al, DOCKET NO. STN 50-528 (Palo Verde Nuclear Generating Station, Unit 1)
ATTACHMENT A TO EXHIBIT B TO APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO AFFIDAVIT OF U S CITIZENSHIP OF THE FIRST NATIONAL BANK OF BOSTON
AFFIDAVIT OF U.S. CITIZENSHIP The Cohue;.-alth of Massachusetts)
) ss.
County of Suffolk- )
I, T. McLean Griffin, 14 Beckford Street, Salem, Massachusetts, being duly sworn, depose and say:
- 1. That I am Cashier, General Counsel, and Secretary of the Board of Directors of The First National Bank of Boston, a national banking association, organized and existing under the laws of the United States (hereinafter called the "Bank" ), with offices at 100 Federal Street, Boston, Massachusetts, in evidence of which organization a certified copy of the Articles of Association is filed herewith together with a certified copy of the By-Laws;
- 2. That I am authorized by and on behalf of the Bank to execute and deliver this Affidavit of U.S. Citizenship;
- 3. That the names of the Chairman of the Board of Directors who is the Chief Executive Officer, the President, and the Executive Vice Presidents or other individuals who are authorized to act in the absence or disability of the President or other Chief Executive Officer, and of the Directors of the Bank as of September 30, 1985, are as follows:
Name, Title Date and Place of Birth Martin A. Allen Director January 27, 1931 Des Moine's, IA William F. Andrews Director October 7, 1931 Easton, PA Benjamin J. Bowden Executive Vice President June 13, 1932 Beverly, MA William L. Brown Chairman of the Board of February 1, 1922 Directors and Director Hendersonville, NC J. Richard Bullock Director March 2, 1923 Worcester, MA William J. Clark Director October 1, 1923 Kansas City, MO
-Gary L. Countryman Director July 30, 1939 South Bend, WA John F. Cunningham Director March 5, 1943 Boston, MA
O.
Name Title Date and Place of Birth Alice F. Emerson Director October 26, 1931 Durham, NC Lawrence K. Fish Executive Vice President October 9, 1944 Chicago, IL Raymond C. Foster Director March 30, 1919 Watertown, MA Gerhard M. Freche Director July 13, 1931 Kansas City, MO Charles K. Gifford Executive Vice President November 8, 1942 Providence, RI Nelson S. Gifford Director May 3, 1930 Newton, MA T. McLean Griffin Senior Vice President, September 12, 1922 General Counsel and Lake Placid, NY Cashier Richard D. Hill Director November 6, 1919 Salem, MA D. Brainerd Holmes Director March 24, 1921 New York, NY Samuel Huntington Director April 24, 1939 Bayshore, N.Y.
John G. McElwee Director December 19, 1921 Port Bannatyne, Scotland Donald F. McHenry Director October 13, 1936 St. Louis, MO Alan L. McKinnon Executive Vice President February 13, 1928 Boston, MA Clark W. Miller Executive Vice President January 25, 1930 Columbia, PA Colman J. Mockler, Jr. Director December 29, 1929 St. Louis, MO J. Donald Monan Director December 31, 1924 Blaisdell, NY
Name Title Date and Place of Birth Edwin B. Morris, ZZI Executive Vice President July 19, 1939 Washington, D.C.
Peter C. Read Executive Vice President March 15, 1936 Cambridge, MA Charles A. Sanders Director February 10, 1932 Dallas, TX Richard A. Smith Director November 1, 1924 Boston, MA Era Stepanian President and Director November 14, 1936 Cambridge, MA Stephen J. Sweeney Director December 15, 1928 Winthrop, MA Eugene M. Tangney Executive Vice President April 8, 1928 Boston, MA Paul N. Vonckx, Jr. Executive Vice President January 22, 1938 Cambridge, MA George R. West Director April 11, 1920 Boston, MA Richard A. Wiley Executive Vice President July 18, 1928 Brooklyn, NY and that each of said individuals is a citizen of the United States by virtue of birth in the United States, birth abroad of U.S. citizen parents, by naturalization during minority through the naturalization of a parent, by marriage to a U.S. citizen prior to September 22, 1922, or as otherwise authorized by law.
.
I I
)
0
- 4. That the information as to stock ownership, upon which the Bank relies to establish that the required percentage of stock ownership is vested in citizens of the United States as of September 30, 1985, is as follows:
Name of Stockholder Number of Shares Percenta e of Shares Owned Bank of Boston 6,015,520 common 99+a Corporation Martin A. Allen William F. Andrews 0 J. Richard Bullock William L. Brown William J. Clark Gary L. Countryman John F. Cunningham Alice F. Emerson Raymond C. Foster
- 80 Gerhard M. Freche Nelson S. Gifford
- 86 Richard D. Hill D. Brainerd Holmes-* 80 Samuel Huntington John G. McElwee Donald F. McHenry Colman M. Mockler, Jr.
J. Donald Monan
- 80 Charles A. Sanders
- 80
O.
0
r Name of Stockholder Number of Shares Percenta e of S ares Owne Richard A. Smith Ira Stepanian Stephen J. Sweeney 0 George R. West
- 80
- Tn Accordance witn the National Bank Act, each National Bank Director must own in his or her own right either shares of the capitol stock of the association of which he or she is a director the aggregate par value of which is not less than $ 1,000, or-an equivalent* interest in any company which has control over such association. As of September 30, 1985, these six (6) Directors of The First National Bank of Boston qualified with shares of capitol stock of the Bank. The remaining Directors, qualified with common stock of the Bank of Boston Corporation.
- 5. That the controlling interest in said Bank, as established by the data hereinbefore set forth, is owned by citizens of the United States; that the title to such proportion of the stock of said Bank is vested in citizen of the United States free from any trust or fiduciary obligation in favor of any person not a citizen of the United States; that such proportion of the voting power of said Bank is vested in citizens of the United States; that through no contract'or understanding it is so arranged that the majority of the voting power of said Bank may be exercised, directly or indirectly in behalf of any person who is not a citizen of the United States; and that by no means whatsoever, is control of said Bank conferred upon or permitted to be exercised by any person who is not a citizen of the United States.
- 6. That affiant has carefully examined this affidavit and asserts that all of the statement and representations contained therein are true to the best of his knowledge, information, and belief.
Dated:
/%/~ ~
T. McLean G xn
The Commonwealth of Massachusetts)
) ss.
County of Suffolk )
On the 15th day of October, 1985, before me appeared T. McLean Griffin, to me personally known, who being by me duly sworn, did depose and say that he is the Senior Vice President, General Counsel, Cashier/
and Secretary of the Board of Directors of THE FIRST NATIONAL BANK OF BOSTON, a national banking association, that the seal was affixed to the instrumen" by T. McLean Griffin in his capacity aforesaid by authority conferred upon him by the By-Laws of the Bank and that he acknowledged said instrument to be the free act and deed of THE FIRST NATIONAL BANK OF BOSK)N.
Notary Pub zc My commission expires March 31, 1989
~ ~
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~,
o
UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY't alg DOCKET NO STN 50-528 (Palo Verde Nuclear Generating Station, Unit l) e ATTACHMENT B TO EXHIBIT B TO APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO AFFIDAVIT OF U.S. CITIZENSHIP OF BANK OF BOSTON CORPORATION
.
o
AFFIDAVIT OF U.S. CITIZENSHIP The Commonwealth of Massachusetts)
) ss.
Country of Suffolk )
I, T. McLean Griffin, of 14 Beckford Street, Salem, Massachusettsg being duly sworn, depose and say:
- 1. That I am Clerk, General Counsel and Secretary of the Board of Bank of Boston Corporation, a Massachusetts corporation, organized and existing under the laws of the Commonwealth of Massachusetts "the Corporation", with offices at 100 Federal Street, Boston, Massachusetts, in evidence of which organization a certified copy of the By-Laws is filed;
- 2. That I am authorized by and on behalf of the Corporation to execute and deliver this Affidavit of U.S. Citizenship;
- 3. That the names of the Chairman of the Board of Directors, who is the Chief Executive Officer, the President, and other individuals who are successively authorized to act in the absence or disability of the Chairman of the Board and the names of the Directors of the Corporation as of September 30, 1985 are as follows:
Name Title Date and Place of Birth Martin A. Allen Director January 27, 1931 Des Moines, IA William F. Andrews Director October 7, 1931 Easton, PA I
William L. Brown Chairman and Director February 1, 1922 Hendersonville, NC J. Richard Bullock Director March 2, 1923 Worcester, MA William J. Clark Director October 1, 1923 Kansas City, MO Gary L. Countryman Director July 30, 1939 South Bend Washington John F. Cunningham Director March 5, 1943 Boston, MA
. Alice F. Emerson Director October 26, 1931 Durham,- NC Raymond C. Foster Director March 30, 1919 New York, NY
0 Name Title Date and Place of Birth Gerhard M. Freche Director July 13, 1931 Kansas City, MO Nelson S. Gifford Director May 3, 1930 Newton, HA T. McLean Griffin Clerk, General Counsel, September 12, 1922 and Secretary of the Lake Placid, NY Board of Directors Richard D. Hill Director November 6, 1919 Salem, HA Samuel Huntington Director April 24, 1939 Bayshore, N.Y.
D. Brainerd Holmes Director May 24, 1921 New York John G. McElwee Director December 19, 1921 Port Bannatyne, Scotland Donald F. McHenry Director October 13, 1936 St. Louis, MO Alan L. McKinnon Executive Vice February 13, 1928 President, Comptroller Boston, MA and Treasurer Colman M. Mockler, Jr. Director December 29, 1929 St. Louis, MO J. Donald Monan Director December 31, 1924 Blaisdell, NY Charles A. Sanders Director February 10, 1932 Dallas, TX Richard A. Sm'th Director November 1, 1924 Boston, HA Xra Stepanian President and November 14, 1936 Director Cambridge, MA Stephen J. Sweeney Director December 15, 1928 Winthrop, MA
Title Date and Place of Birth George R. West Director April 11, 1920 Boston, HA and that each of said individuals is a citizen of the United States by virtue of birth in the United States, birth abroad of U.S. citizen parents, by naturalization during minority through the naturalization of a parent, by marriage (if a women) to a U.S. citizen prior to September 22, 1922, or as otherwise authorized by law.
- 4. That I have access to the stock books and records of the Corporation; that said stock books and records have been examined and disclose (a) that as of September 30, 1985 the Corporation had issued and outstanding 19,525,938 shares of Common Stock of the Corporation issued and outstanding owned of record by 13,936 stockholders; e
(b) That the registered address of 13,854 owners as of September 30, 1985 of record of 19,463,294 shares of the issued and outstanding Common Stock of the Corporation are shown on the stock books and records of the Corporation as being within the United States, said 19g4631294 being ninety-nine and sixty-seven one hundredths per centum of the total number of shares of said stock; As of September 30, 1985 the Corporation had 1,045,712 issued and outstanding shares of Adjustable Rate Cumulative Preferred Stock, Series A (liquidation preference $ 50 per share). Of this amount, 1602 shareholders representing 99.81% of the total number of shares are United States citizens. As of September 30, 1985, the Corporation had 1,576,068 issued and outstanding shares of Adjustable Rate Cumulative Preferred Stock, Series B. Of this amount, 3,089 shareholders representing 99.87% of the total number of shares are United States citizens.
(c) That pursuant. to Section 13 of the Securities Exchange Act of 1934, any beneficial owner of more than 5% of the Corporation's class of Common Stock is required to file a report on Schedule 13G or 13D with the Securities and Exchange Commission with a copy sent to the Corporation. The records of the Corporation indicate that only two Schedule 13G and no Schedule 13D was filed in 1985 with respect to the Corporation's Common Stock. A Schedule 13G was filed by Wellington Management CompanyjThorndike, Doran, Paine & Lewis ("Wellington" ) who beneficially owned 1,638,129 shares of the Common Stock of the Corporation, representing 8.53% of the issued and outstanding Common Stock of the Corporation as of December 31, 1984. A Copy of this Schedule 13G is enclosed herewith as Exhibit A an indicates that no one advisory client of Wellington has ownership of more than 5% of the issued and outstanding Common Stock of the Corporation (see Etem 6 of the attached Schedule 13G) and that Wellington has shared voting power with respect to only 146,900 of such shares, and shared investment discretion with respect to all such shares. As of September 30, 1985, the beneficial ownership of Wellington was 1,728,349 shares of the Common Stock of the Corporation, representing 8.88%. Wellington has shared voting power with respect to only 266,100 of such shares, and shared investment discretion for all shares.
0' (d) That the following individuals are all partners of "Wellington" and that each of said individuals is a citizen of the United States of America unless otherwise indicated.
Daniel A. Abeam Nancy T. August Vincent Bajakian Anthony T. Cope (U.K.
William D. DiZanni Robert W. Doran Charles T. Freeman James C. French John H. Goocl William C. S. Hicks William D. Jones, Jr.
F. Danby Lackey, IIZ George Lewis Earl E. McEvoy Duncan M. McFarland Paul M. Mecray, ZZI Ernst Hans von Metszch(Netherlands)
Jerrold I. Mitchell John B. Neff John A. Myheim Edward P. Owens Stephen D. Paine Saul J, Pannell Stephen M. Pazuk Eugene E. Record, Jr.
Dena W. Reed David W. Scudder Binkley C. Shorts Stephen A. Soderberg Ralph E. Stuart, Jr.
Paul G. Sullivan W. Nicholas Thorndike Gene R. Tremblay James L. Walters Francis V. Wisneski That "Wellington", holds title as nominee, to none of the shares of Common Stock as of September 30, 1985; all such shares are held in nominee names of individual clients.
That the beneficial interest of such shares is held by 30 discrentionary client accounts of which shares 1,685,176 or 8.74% is shown to be held by stockholders having registered addresses within the United States; and That n n~ cf the'wners of the shares so held owns 5 percent or more of the issued and outstanding common stock.
0 0
(e) That as of December 31, 1984 Sanford C. Bernstein and Co., Inc.
was the holder of record ownership of 1,290,160 shares or 6.7% of the Common Stock of the Corporation, with sole investment discretion for 1,290,160 shares and sole voting power for all 348,500 shares. A copy of this Schedule 13G is enclosed herewith as Exhibit B.
(f) That none of the owners of the shares so held owns 5S or more of the issued and outstanding Common Stock.
(g) That the following individuals are all directors of Sanford C.
Bernstein and Co., Inc. and are all U.S. citizens.
Valjean C. Bernstein, Chairman Lewis A. Sanders, President Roger Hertog Joseph B. Greeley Stuart K. Nelson (h) As of July 31, 1985, Sanford C. Bernstein and Co., Inc. held 250 shares of Common Stock of the Corporation.
(i) As of September'30, 1985, no other stockholder owned of record 5% or more of the outstanding Common Stock of the Corporation other than Cede & Co., a nominee for The Depository Trust Company, who owned of record 13,985,104 shares, or 71.62% of the issued and outstanding Common Stock. Cede & Co., owned 502,996 shares of Adjustable Rate Cumulative Preferred Stock, Series A or 48.1% of the issued and outstanding stock.
Cede & Co., owned 692,289 shares of Adjustable Rate Cumulative Preferred Stock, Series B or 43.928 of the issued and outstanding stock. The Depository Trust Company is a limited purpose trust company chartered under the Banking Law of the State of New York, a member of the Federal Reserve System, and a "clearing corporation" within the definition set forth in Section 8-102(3) of the Uniform Commercial Code. Depository Trust is presently a wholly-owned subsidiary of the New York Stock Exchange, Inc. and is engaged in the business of effecting the transfer and pledge of securities deposited with it by its participants through bookkeeping entries as permitted by the Uniform Commercial Code. In order to facilitate subsequent transfers, all securities deposited by participants with Depository Trust are registered in the name of its partnership nominee, Cede & Co. Neither Depository Trust nor its nominee, Cede & Co., beneficially own any securities. Participants in the Depository Trust system are financial organizations, such as member firms of the New York Stock Exchange and the American Stock Exchange, banks, registered management companies and clearing corporations. the organizations which deposit securities with Depository Trust may or may not be the beneficial owners of such securities. Depository Trust has no indication whether or not securities are beneficially owned by the organizations which deposit them in its system. Cede & Co., as nominee, holds the shares of the Corporation Common Stock for the clearing members.
- 5. That the controlling interest in said Corporation, as established by the data hereinbefore set forth, is owned by citizens of the United States; that the title to such proportion of the stock of said Corporation is vested in citizens of the United States free from any trust or fiduciary obligation in favor of any person not a citizen of the United States; that such proportion of the voting power of said
Corporation is vested in citizens of the United States; that through no contract. or understanding it is so arranged that the majority voting power of said Corporation may be exercised, directly or indirectly in behalf of any person who is not a citizen of the United States; and that by no means whatsoever, is control of said Corporation conferred upon or permitted to be exercised by any person who is not a citizen of the United States.
- 6. That the affiant has carefully examined this affidavit and asserts that all of the statements and representations contained therein are true to the best of his knowledge, information, and belief.
Dated: (%g/g 5
. H an Grz n
O.
~ i
The Commonwealth of Massachusetts)
) ss.
Country of Suffolk )
On the 15th day of October, 1985, before me, the undersigned Notary Public in and for said Commonwealth duly commissioned and sworn, personally came T. McLean Griffin, to me known, who being by me duly sworn, did depose and say that he resides at No. 14 Beckford Street, Salem, Massachusetts; that he is Clerk, General Counsel, and Secretary of the Board of Directors of BANK OF BOSK)N CORPORATION, a Massachusetts business corporation organized and existing under the laws of the Commonwealth of Massachusetts that the seal affixed thereto is the seal of said Corporation, and that he was duly authorized by the Board of Directors of said Corporation to execute said certificate and to affix the seal of said Corporation thereto.
0 )la-Lt otary 1c My Commission Expires March 31, 1989
O.
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UNITED STATES OF AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al, DOCKET NO STN 50-528 (Palo Verde Nuclear Generating Station, Unit 1)
ATTACHMENT C TO EXHIBIT B TO APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO 1984 ANNUAL REPORT OF BANK OF BOSTON CORPORATION
f e
Corporate Group 1984 Annual Report "To enhance our leadership position through innovative and responsive 0
BANKOF BOSTON financial services for our customers."
CORPORATION 200 Years of Service International Group "To provide global reach for our don>estic businesses and to be a key local bank within selected countries."
Uo L~m New England Group "To be the preeminent New England bank in profitability, size and creative management thinking."
Real Estate Group "To reaffirm our commitInent to the real estate capital and n>ortgage markets."
Treasury/Investment Banking Group "To serve as the financial crossroads for structuring, funding and placing debt and equity transactions."
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Financial Highlights Percentage Increase (Decrease) 1984 1983 Compared roiih 1984 1983 1982 1983 1982 O For the Year Net interest revenue $ 669,932 $ 606,451 $ 554,125 10% 9%
fin thousands) Provision for credit losses 180,000 54,000 48,000 233 13 Other operating income 479,802 266,001 227,686 80 17 Other operating expense 722,280 595,21'1 549,189 21 8 Net income 164,054 135,736 124,401 21 9 Per Common Share Data Net income $ 8.35 $ 7.40 $ 6.67 13% 11%
Dividends declared 2.34 2.17 1.97 8 10 Book value 58.75 53.26 48.70 10 9 Market value at December 31 393/4 40'/2 33'/~ (2) 20 Average shares outstanding 19,117,167 18,349,634 18,660,785 4 (2)
Seieded Ratios Return on average assets .79% .72% .71% 10% 1%
Return on average common stockholders'quity 15.19 14.44 14.70 5 (2)
Dividends declared per common share to net income per common share 28.02 29.32 29.54 (4) (1)
Price/earnings at December 31 4.76X 5.47X 5.06X (13) 8 Total assets to stockholders'quity at December 31 18.62X 19.40X 20.66X (4) (6) nd Loans and lease financing $ 14,589 $ 11,896 $ 10,714 239o 11%
fin ions) Total assets 22,079 19,538 18,267 13 7 Deposits 15,258 12,381 11,674 23 6 Total stockholders'quity 1,185 1,007 884 18 14 Contents Letter to Stockholders Special Feature:
Bank of Boston's New Strategy 8 Financial Review 23 Report of Management 42 Report of Accountants 43
< r<<<
Financial Statements 44 Consolidated Statistical Information 61 Quarterly Financial Information Io BANKOF BOSTON and Common Stock Data 83 CORPORATION Board of Directors 84 I
Corporate Officers 86 Stockholder Information 88
To Our Stockholders William L. Brown, Chairman Ira Stepanian, President "To maximize long-term shareholder value in the conduct of a highly ethical financial enterprise."
The remaining $ 118 million was required to be deferred and amortized over the initial term of our Corporation generated record earnings of the lease agreement.
$ 8.35 per common share in 1984, an increase of 13%
After adjusting for the effect of the sale of the over the $ 740 reported a year earlier. Net income building and other special fourth quarter events, for 1984 was $ 164.1 million, an improvement of such as the special provision for credit losses and 21% over the $ 135.7 million recorded in 1983.
the writedown of the mortgages previously held in Continued growth in earnings allowed your the portfolio, operating income for the year was a Directors to increase the annual dividend rate on disappointing $ 5.99 per share. However, we the Corporation's common stock from $ 2.32 a expect a better performance in 1985 based on our share to $ 2.40. This is the seventh increase in as strategic plan.
many years and the 18th in the last 20 years, repre-senting a 3% increase in the dividend rate.
Bank of Boston's Strategic Plan Increases were also posted in two common mea-0 sures of your Corporation's profitability. Return on To enhance our performance in the years ahead, common equity (ROE) was 15.19% for 1984, com- we implemented our strategic plan at the begin-pared with 14.44% for 1983. Return on assets ning of 1985. Our more formalized planning effort (ROA) was .79%, up from .72% in 1983. began two years ago in response to developments
's year's strong performance reflects the gain both inside and outside the Corporation. These to the sale of our Boston headquarters included:
bui ing, as well as increases in net interest reve- ~ Our size, after more than a decade of worldwide nue and other operating income. These gains were growth offset in part by a higher provision for credit ~ The rapidly changing competitive and regulatory 0 losses, including a $ 100 million special provision, environment and increases in other operating expenses. The building, which willbe leased back to the Corpo-
~ Higher shareholder expectations ration, will continue to be known as the Bank of Growth: Until recently, the banking industry Boston Building and remain your Corporation's including Bank of Boston emphasized growth e world headquarters. The building was sold for through the expansion of services. For many
$ 363 million in December, resulting in a pre-tax years, this strategy proved successful. Our pri-gain of $ 295 million. Of that amount, $ 177 million mary objective was service; our willingness to was recognized in 1984's operating earnings. enter new businesses in response to customer needs was well rewarded. But the fortuitous link between growth and profits began to weaken. By
Dividends Declared 1982, we had become a giant institution. Clea ~
Per Common Share $ 3 the time had come to take a closer look at our structure and management systems.
The changing marketplace: While we were expand-ing, deregulation and increased competition were altering the shape of the financial services indus-try. The most profound change was the emergence of money market funds, with their pronounced ability to attract consumer assets. In addition, bro-kerage firms, insurance companies and other
'
financial service companies began offering com-79 80 81 82 83 84 petitive alternatives to banking products. Bankers, hobbled by outmoded regulations, watched help-lessly as their traditional retail business was eroded by "non-banks." By the time the regula-Net Income Per Common Share tory burden was lifted, we found ourselves faced
$ 10 with stiffer competition than ever before from competitors that had been non-existent only a few years ago. Successfully meeting our competit' and capitalizing on new opportunities now av able to us, required a thorough examination of our strengths and weaknesses and a plan for the rede-ployment of our resources.
Higher shareholder expectations: Along with increased competition for business, we foresaw 79 80 81 82 83 84 increased competition for capital, a vital resource.
Investors began demanding a higher return on equity a return sufficient to increase the price ~
of their shares. To satisfy these expectations, it was
that we had to instill new disciplines and Return on kindle a new management consciousness at all lev- .80 % Average Assets els of the Corporation. .70
.60 The new plan, the new structure
.50 After two years of analysis and evaluation, the .40 strategic planning processes generated the blue- .30 print for Bank of Boston's new structure: a decen- .20 tra1 ized, numbers driven, strategical ly managed Q .10 Corporation, well positioned to maximize the value of its shareholders'nvestment. 79 80 81 82 83 84 A new organization: Bank of Boston has a new five-Q Group organizational structure that is examined in detail in this year's special section: Return on 16% Average
~ Corporate Group Common 14
~ International Group Equity 12 England Group 10
~ eal Estate Group
~ Treasury/Investment Banking Group Each of these Groups is now an independent, sep-arately managed business with its own strategic direction and with control over and responsibility 79 80 81 82 83 84 for its own costs and profitability.
Establishing the strategic direction of the Corpor-ation and setting its public posture is the role of the Office of the Chairman, which also retains
ultimate decision-making responsibility. The is assigned. Our goal is for each employee to p ~
Office of the Chairman and the five Group Execu- ticipate in and contribute creatively to his or her tives compose the Management Committee, which particular area whether through new business is responsible for the Corporation's overall perfor- development, cost control or productivity improve-mance and policies. In addition, the Management ments. In return, employees will receive the Committee initiates and supervises intergroup rewards and personal satisfaction that accompany cooperation and the sharing of resources. the attainment of positive results.
While many staff services have been decentral-ized to give line managers control over costs, and Our strategy in New England thereby increase efficiency, a small staff unit A key element of your Corporation's strategy is to remains: the Corporate Center. This core group of be our region's preeminent bank. Our objective is senior staff professionals provides support to the to have a major presence in each New England Office of the Chairman, and functional guidance state. Regional expansion efforts have been tempor-and advisory services to the Groups.
A new financial discipline: In response to compet-arily halted by a suit before the United States ~
Supreme Court challenging provisions in some itive and profitability pressures, the Corporation interstate banking laws that allow reciprocity only now is analyzing itself in a new way. We are now with other New England states. We believe that the concentrating our focus on the return on equity, constitutionality of these statutes will be upheld not only of the consolidated Corporation, but also and that we will soon be able to complete the of each of our individual businesses.
pending acquisitions of Colonial Bancorp in Con-This yardstick allows us to compare empirically necticut and RIHT Financial Corporation in Rhode the productivity of resources committed to each of Island. A significant step in our New England our domestic and international business units. Our strategy was accomplished in March with the goal is to temper and direct our growth to maxi-acquisition of Maine's Casco-Northern mize returns. The ROE standard will largely indi-Corporation.
cate those businesses to expand, those businesses to merely maintain, and those we should divest.
Economic outlook A new approach to employee contntitment: Closely related to this discipline are our efforts to develop After two years of vigorous growth, it is likely that a new management and employee consciousness: the pace of business activity will moderate some-an entrepreneurial dedication to the profitability of what during 1985. There is little doubt, however, the business unit and Group to which the employee that both the national and regional economies will remain firmly on the path of expansion. With inflation expected to remain in the range of 3 to 4%, continuing gains in real consumer income will
ibute to the forward momentum of the econ- have set high standards for the Corporation for omy. Moreover, the easier credit conditions fos- many years: former Chairman Richard D. Hill, tered by the Federal Reserve, and the resultant who retired as Chairman of the Executive Com-declines in interest rates seen in recent months, mittee this year, and George E. Phelan, who will undoubtedly have a rejuvenating effect on retired as Vice Chairman of the Corporation. Their business activity. valuable counsel will still be available to us, how-ever, as Mr. Hill continues to serve as a Director of A time of change the Bank and Corporation and Mr. Phelan remains on the Board of Casco-Northern Corporation.
Obviously, this is a time of significant change at During 1984, three new members were elected Bank of Boston. But one goal remains: to maxi-to our Board of Directors. William F. Andrews, mize long-term shareholder value in the conduct President, Chairman and Chief Executive Officer of a highly ethical financial enterprise. We also of Scovill Inc. was named in March. In August, reaffirm our commitment to our employees and John F. Cunningham, President of Wang Labora-0 the communities and customers we serve. In an tories, replaced An Wang, who continues to serve important sense, these commitments are but-as an honorary director. In December, Samuel tressed by our quest for improved profitability. For Huntington, President and Chief Executive Officer if our return on equity is not sufficient, we will be of New England Electric System, replaced Guy'W.
able to serve these constituencies.
0 Nichols, who retired from the Board. We thank t as our success over the years has been the Mr. Nichols for his years of service to the duct of our employees'ride, dedication and Corporation.
professionalism, so our future success will spring from their continued commitment and tomorrow's 0 accomplishments. Your Corporation values highly its ability to attract and retain the widest range of qualified employees, so we have expanded our William L. Brown affirmative action programs for women, minorities Chairman and other groups. The results are gratifying: We e have reduced the turnover rate among women and minorities, increased the number of handicapped Ira Stepanian employees in our workforce, and achieved a President higher representation of women and minorities in key managerial and professional positions.
It is also appropriate that we express our grati-tude to two individuals whose accomplishments
"A new structure was created to capitalize on the characteristics that have made us unique among American banks."
ank of Boston's New Strategy In 1984, Bank of Boston's strategic planning process resulted in a new form and new direction for the Corporation.
A new structure was created to capitalize on the characteristics that have made us unique among American banks. We are:
~ a sophisticated national provider of corporate financial services
~ a significant interna-tional bank
~ the largest bank in New England
~ one of the country' leading real estate banks
~ a major participant in national and interna-tional money markets Each of these characteris-tics represents an impor-tant opportunity for us, which is reflected in our new organization:
~ Corporate Group
~ International Group
~ New England Group
~ Real Estate Group
~ Treasury/Investment Sculptor Chuck Holtaman Banking Group Each Group has its own support units, controls its own costs and is responsi-ble for its own profitabil-ity. Each is a distinct yet integral part of the Bank.
Each has an important role to play in helping Bank of Boston thrive now and in the future.
Corporate GroUp 80ttoo Garden Charles K. Gifford, Group Executive "To enhance our leadership position through innovative and responsive financial services for our custonrers."
Eugiueeriug supervisor Keith HaudysilO at WNEV-TV
~ new direction Corporate lending has long been a mainstay of to provide a broad range of high value financial products. These include innovative and sophisti-cated techniques in the bring together the special combination of investment banking and corporate lending skills needed to provide solutions to com-nated U.S. multinational companies provides us with numerous opportuni-ties to enhance these important relationships.
areas of tax advantaged plex financing problems The ability to create new O Bank of Boston's earnings. financing, interest rate such as mergers, lever- products quickly willbe Much of our growth is protection, corporate aged buy-outs, or capital one important tool in attributable to our histori- finance and specially structure. The other, rela- achieving this objective.
cal strength in the New designed leasing prod- tionship planning, will Another is our ability to England corporate lending ucts, which will more bring a new discipline to pinpoint those customers market, our participation completely meet the needs our marketing activities and prospects that can y our international lending in national markets and of a broader range of cus- by encouraging officers to benefit most from a tomers and prospects. focus on the total range of broad spectrum of our capabilities, particularly a customer's needs. To resources, allowing us to in Latin America. Where we are going accomplish this, we have more efficiently deliver But traditional lending brought two important our services to this seg-will no longer be enough The Bank has recognized services, Cash Manage- ment of our market.
sustain any true com- that this strategy requires
~ topetitor in today's rapidly changes in the way we ment and Freight Manage- Despite the strength of the ment, within the dollar, foreign investment changing financial mar- approach our markets. As in this country continues Corporate Group.
ketplace. New competi- a result, we have reorgan-Large Corporate: The pri- to present attractive financ-tion, new techniques and ized along customer lines new financing ideas are Large Corporate, Mid-mary goal is to enhance our relationships with ing opportunities to us.
dle Market and Special- Middle Markets The
~, c ng the way corpor- carefully selected cus-ssess and meet ized Industries. vitality of mid-sized com-t apital needs. A Simultaneously, we are tomers and prospects, and panies those with sales to become a more signifi- ranging from $ 50 million major thrust of the Bank, designing two new ap-through its Corporate proaches to cross-selling cant supplier of products to $ 150 million is a true and services to them on a Group and the closely credit and non-credit mutually beneficial basis.
Treasury/Invest- products and services
~ related ment Banking Group, is transaction management Our global approach to the management of desig-expansion beyond lending and relationship planning.
Transaction manage-ment will permit us to
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New ventures team leader Barbara Mastro talks with Kenneth Lcavitt of CGX Corporation Manning heads one of lhe largest bank leasing operations in the U.S. CorPorate bankers (from left)
Constanlin R. Boden, Phillip M. Sullivan, T. Lincoln Morison lr., Paul N. Vonckr lr.
International Group indicator of America's re- Specialized Iurlttstries: By juvenated economy. These committing people and corporations will play an resources to particular important role in asset industries, Bank of Boston and earnings growth. has become a national Today we are the largest leader in specialized lend-lender to middle market ing. We are one of three corporations in New recognized high technol-ogy banks in the country. r (,yt ~ lsd England.
Our middle-market In addition, we have a
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prominence in other areas long history of successful IO;, 2 of the country reflects the involvement with the 3 ~
~9 3e success of our asset based entertainment, communi- '8. ~
4' financing activities cations, transportation 5.-'I commercial finance, fac- and utilities industries. ~ tt ~ ~ ~
toring and leasing. We More recently, we have intend to build on this achieved a significant yet prominence by commit- selective penetration of ting more resources to our the energy and insurance regional centers in markets. Our familiarity Atlanta, Dallas, Chicago with industry trends, and Los Angeles. The business cycles and flow of new products from unusual financing the Treasury/Investment requirements gives us an Banking Group will per- important competitive mit us to better retain advantage in these indus-those relationships we tries and a major opportu-established through asset nity for growth and based financing at an increased profitability.
early stage of the custom-er's development.
Clark W. Miller, Group Executi "To provide global reach for our 'pollo domestic businesses and to be a key local Computer's DN550 color graphics workstation bank zoi thin selected countries."
12
I While these geographic l areas retain responsibility roviding services for credit and local cur-around the world rency banking in their In the past two decades, respective regions, World-Bank of Boston has wide Financial Services expanded its international bears strategic responsi-network into one of the bility for integrating all
'
most extensive among international correspon-American banks. In the dent banking, trade ser-future, the Bank will vices and private banking leverage this network activities. By coordinating where we have offices in product development and 38 countries to provide administration for each af global reach for our other these businesses, they operating Groups and to create economies of scale generate income through that can significantly international banking increase the profitability activities. of these services. In addi-One of the most impor- tion, by providing a tant goals of the Group is global marketing perspec-to boost earnings by tive, Worldwide Financial increasing transaction vol- Services assures that cus-ume flowing among the tomers will utilize our various international facil- international network to ities without materially the fullest.
increasing cross-border Latin America: Since exposure. To accomplish 1917, when we opened this objective, Worldwide our first international Financial Services has branch in Buenos Aires, been created to augment Latin America has been the geographic thrust of the cornerstone of the Latin America, Asia/Pacific Bank's international oper-and Europe/Middle East/ ations. Despite periods of Africa.
Tinrothy F. Hurley, head of/oreign exchange desk
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I Banco de Boston, Buenos Aires
turbulence, the Bank has Other opportunities have A new attitude toward maintained its commit- emerged as well: foreign investments by ment to the region and ~ International cash man- the government of Aus-has reaped substantial tralia also creates wel-agement is increasing in rewards for doing so. come opportunities there.
importance. For exam-Today, our extensive We look forward to offer-ple, in Brazil, the intro-Latin American presence duction of this service ing additional services is one of the Bank's most that will supplement our resulted in the expan-valuable assets. Although sion of our local fee successful leasing and there has been a need to merchant banking businesses.
restructure some loans, activities.
by limiting our involve- ~ We have opened loan Europe/Middle East/Africa:
ment in certain countries production offices for In Europe, special empha-and expanding in others, indigenous lending and sis is being placed on we have preserved a com- non-traditional banking leasing, high technology petitive position that will services in various lending and on the prod-allow aggressive business Latin American ucts and services offered development during the countries.
by Worldwide Financial region's anticipated eco- ~ We continue to have Services. Our new branch nomic recovery later in significant interest in Istanbul, established to this decade. in deposit-gathering capitalize on banking Our strategy in the capabilities in the opportunities within region, which has been to Caribbean. Turkish borders, forges a emphasize local currency Asia/Pacific: Trade ser- link between our Euro-lending and minimize vices, correspondent pean operations and the cross-border exposure, Middle East.
banking and, to a lesser remains unchanged. extent, private banking, Increased local currency are our most significant needs have led to the opportunities in the Far expansion of branch net- East.
works in Argentina, Uru-guay and Chile.
Bank of Boslon, Hong Kong Brternational teller Alice Vasquer.
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New England Group ecoming the region's leader The six-state area presents greater opportunities than ever before to Bank of Boston. With more than 5,000 employees and nearly 200 branches dedi-cated to serving New Eng-landers, the Bank enjoys unmatched access to the business and personal banking customers in one of America's most attrac-tive markets.
Our goal is to be the preeminent New England bank in profitability, size and creative management thinking. Preeminent means that Bank of Boston will achieve a leadership position that is widely rec-ognized by our customers, our competition and our 1
employees; New England t reemphasizes our commit-t ment to the region; profit-ability underscores return on equity as the primary Lawrence K. Fish, Group Executive Orleans branch, Cape Cod, Massachusetts "To be the preeminent New England bank in The weekly review meeting of lhc Nctv England Management Committee 0 includes (from left) john C. Marlin, Benjamin /. Bottrdcn, Lawrence K. Fish, profitability, size and D. Bruce Wheeler, Eugene M. Tangney and Ralph B. Fificld creative management 'r tl thinking." -kl: t>>
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measurement for all our understand and meet the who have investment services For exam businesses; size conveys needs of each geographic and fiduciary needs through their relation-knowing how and when area and the particular ~ Private Banking for high ship officers, business to use our strengths to customer segments in income individuals who executives can obtain better serve our regional which we choose to com- have credit needs commercial loans, mort-markets, and crentive tnntt- pete. Rather than have gages, personal loans, agetttent thinking addresses multiple units reporting ~ Middle market education loans and ~
our concern that all man- to a single Boston man- companies estate planning services.
agers be bold enough to agement headquarters, the ~ Small commercial and ~ Local managers have experiment and make dif- Massachusetts network community businesses control of the direct ficult decisions. has been decentralized ~ Commercial real estate costs associated with As a "bank within a into seven Regional Finan- providing services to bank," the New England cial Centers (RFCs): Greater Each RFC has its own local customers. 0 Group will measure its Boston, Metropolitan President and Regional performance and profit- North, Metropolitan Board of Directors, all of Product management and ability against the top South, Southeastern Mas- whom are prominent cost management: Essen-regional banks in the sachusetts, Cape Cod, members of the local com-tial disciplines country. By achieving Worcester, and Western munity. Each RFC has dis-returns equal to or ex- Massachusetts. cretionary credit-granting The localized management ~
ceeding the levels set by Each RFC is a self-con- capability. Each deter- approach is the most visi-these banks, the Group tained, autonomous bank mines how best to serve ble aspect of the New can have a major impact within the Group, provid- its market. England Group's strategy.
on stockholder ing comprehensive ser- This decentralized Less evident but equally investment. vices to the priority structure brings impor- important are our product customer segments in its tant advantages to both management capabilit, ~
Regional Financial Cen- geographic area. Depend- our customers and the and stringent cost co ters: A significant shift in ing upon the region, these Bank: measures.
management philosophy segments may include: ~ Localized management Product tttnnagetttett t:
leads to greater under- While products requiring New England's distinct ~ Retail Banking for the standing of local needs highly personalized ser-diversity both geo- mass market and up- and allows us to tailor vice are being managed at graphic and economic scale customers our staffing and services the RFC level, manage-demands a bold approach Personal Trust for high-
~ to meet those needs. ment of certain basic retail to managing, where each net-worth individuals ~ Each RFC becomes a products is being central-business is responsible for its own profitability. single source provider of Region-wide success will a spectrum of highly depend on how well we personalized banking L
~
Q Benjamin j. Bcnoden (center, sealed), Massachusetts banking head; ~
Automated Teller Machine confers toith Regional Financial Center Presidents (from lefl) Myles Borland, Barretl C. Nichols, Francis J. McConnack, Ronald S. LaStaiti, Karl Watczak and Francis D. McGrath Qo Bay State Lobster's Jim Faro 0
and catch
~ i <As, NOW accounts, of several staff support serve as trustee and pay- $ 900 million in assets, credit cards, consumer units, new systems in our ing agent on more than close to 1000 employees and loans and similar products Shareholder Services $ 14.5 billion in corporate 56 branches serving a sub-will be managed by prod- and Personal Trust busi- and municipal debt stantial percentage of uct management teams, nesses and the develop- issues. Maine's commercial and who will coordinate with ment of a facilities We continue to be a retail markets. One of
~ retail banking managers planning program. leader in Correspoudeut Maine's largest bank hold-within each RFC. This Banking, ranking as one of ing companies, Casco-interaction will ultimately A national leader in the largest correspondent Northern has long been a lead to higher quality operating services banks in the country and leading commercial lender products and more cost- the largest in New England. and an innovative retailer.
The New England Group effective delivery systems. In Mutual Funds Services, Its trust department consis-manages the Bank's oper-Cost mauage)ueut: we have a growing and tently ranks among the ating products and ser-Every aspect of the New respected business that nation's best in investment vices. Long a leader in England Group's opera- now ranks as the fourth performance.
providing a complete tions, from its branch net- largest among banks in The Casco-Northern range of quality technol-work to its operating the country. In the area of acquisition is a prime ogy-intensive services to systems to its manage- electronic funds transfer, example of how two bank-our customers, we are
~ ment structure, is being scrutinized to assure that narrowing our focus to we operate the Mouec ing organizations can network and participate complement one another.
fewer businesses where all possible economies are economies of scale and in a joint venture with Well-managed and auton-achieved. A sophisticated another New England omous, Casco is already a competitive advantage management information retail bank, christened solid contributor to the allow us to profitably pro-system is being developed MONEY SUPPLY.>>, which Bank's earnings. Its in-vide quality service.
evaluate and provides cash-dispensing depth knowledge of local Two businesses where costs. services in high-volume markets and independent we are renewing and for initiatives are retail outlets across management style are expanding our commit-being undertaken that will Massachuset ts. consistent with the RFC ment are Shareholder Ser-save us millions of dollars over the next few years.
vices Bank of Boston is The Merger with Casco-concept. In turn, as part of the New England the nation's third largest
~ Included in this category bank stock-transfer agent Northern: Becoming Group, Casco will benefit are the consolidation of "New England's Bank" from product improve-and Corporate Trust Ser-our Massachusetts opera- ments and innovations vices, through which we The first stage of our tional activities, relocation and cost reduction pro-regional expansion was of our credit card opera- grams that may have been completed in March, 1984, tions, the decentralization too expensive for Casco to with the acquisition of Maine's Casco-Northern under take independently.
Corporation, a bank hold-ing company with nearly fohn M. Daigle, Casco-Northern Beth Levine <foreground) sorls checks at high speed with Caryl Kennedy 17
Real Estate Group U
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>4 af>>4>4 jjjjjjjjjj.I International Place at Fort Hill, Boston Edwin B. Morris III, Group Executive "To reaffirm our commitment to the real estate capital and e
mortgage markets." John F. Abeam u>ith developers Donald Tc (center) and his father, Arnold (left)
Lead lender in high-rise office build-ing al 599 Lexington Avenue in Neto York City
~ national leader Real Estate has been a dis-tinctive specialty of Bank relationships with devel-opers to emphasize officer continuity and personal-ized service, we have become one of the top This reputation with developers greatly enhances our ability to structure attractive syndi-cations of loans to other strategy designed specifi-cally to meet these challenges.
The Pooled Real Estate of Boston for many years. providers of real estate lenders desiring loan par- Investment Fund
~ Rather than signaling a financing in the country. ticipations from the Real The Real Estate Group strategic change, the crea- Like our customers'roj- Estate Group.
manages the Pooled Real tion of the Real Estate ects, our financings are Mortgage Banking: The Estate Investment Fund.
Group reaffirms the Cor- individually designed and Bank's prominence in the Formed in 1975, the Fund poration's commitment to reflect the knowledge and retail mortgage markets of provides pension and serving this major indus- innovation available only the Southeast, as well as profit sharing plans with
'ry. The independence and specialization of our staff from professionals with years of experience. Four New England, places it among the top ten U.S.
a real estate investment vehicle that generates an and our long-standing years ago, this "custom mortgage bankers. An attractive total rate of dedication of financial crafted" approach to excellent counterbalance return and contributes to resources have earned the financing motivated us to for wholesale real estate portfolio diversification.
Real Estate Group a repu- become one of the first lending, residential mor t-Currently, the Fund's
~ tation for responsiveness commercial real estate gage volume typically portfolio exceeds $ 230 and industry competence lenders to match fund increases early in an eco-million and consists of unmatched by banks many of our construction nomic recovery when investments in income where real estate is simply loans, thereby removing interest rates are tradition-an adjunct of corporate the interest cost variable ally low and well before producing properties across the country.
banking. from the critical project wholesale construction During the past three
~ result, the Bank budget. Later, during a loan volume builds. Today years, a time of relatively y ranks among the period of tightness in the the mortgage banking low inflation, the fund has na ton's leaders in the availability of commercial industry faces important earned an inflation-Group's two primary long-term real estate challenges, including the adjusted annual real businesses: wholesale real loans, we instituted what role of technology in mort-return of 9.4%. During estate lending and retail has become a highly suc- gage generation and a the same period, the
~ mortgage banking.
cessful program in which shifting regulatory out- Fund's unit value Wholesale lending: By the Bank shares in a proj- look. We have imple-increased by 46%, com-carefully managing our ect's profit in exchange for mented an operating pared with an increase in providing medium-term the Consumer Price Index funds at predictable, sta-of 12.6%.
ble interest rates.
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'~bI L-rgy~iO~~q 93 Renaissance Properties, Boston t Seaworld Hotel in Orlando, Florida QI ) l
~e~ Ijg Garlan Morse lr. tvith David Bar-rett (left) of Boston Properties at Cambridge <Mass.) Center 19
Treasury/Investment Banking Group a +rsrrs)rr rr ~
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Trading room floor, Boston headquarters Peter C. Read, Group Executive "To serve as the financial crossroads for structuring, Ogg Prtr~ funding and placing
~0 "~~o z Op debt and equity transactions,"
Boiler section being erected for Tlrcrmal Electron Corporation co-gcrreratiou
~ .t' plant iu Florida that will produce elec-20 tricity, air conditioning aud hol water
special requirements. For ~ Merchant bankittgt ment banks, we have a the Bank, these tech- Involvement as principal built-in origination system new role niques offer a way to gen- in venture capital and with our existing staff of erate increased income mezzanine financing, relationship officers.
The role of Treasury/ without creating assets, and leveraged buyouts These officers regularly Investment Banking is thereby removing con- address the financing central to the success of ~ Corporate finatrcet Struc-
~ Bank of Boston's strategy.
straints created by capital turing of corporate debt requirements of several ratios, tax position and instruments, mergers thousand companies.
The Group's primary cus- other factors. Second, we have a sub-tomers are the Bank's own and acquisitions, corpor-Shaping these tech- ate advisory services, stantial presence in the relationship officers, par- niques into products that middle market, where the ticularly those of the Cor- and project finance are valuable to corporate greatest growth and porate Group. Treasury/ ~ Public finance: Under- financing needs exist.
customers, and then mar-Investment Banking is keting them to a wide writing tax-exempt Finally, our potential both the source of funds issues such as municipal competitors in the middle range of investors, is the for delivery to commercial and Industrial Revenue market cannot offer a role of Investment Bank-borrowers, and the devel- Bonds major international pres-ing. In the process, Invest-oper of new financial ment Banking provides ~ Placetttents: Selling ence, which is a gateway products and services that
~ are aimed at expanding corporate lending officers assets to corporations, to sources of capital that with the broad range of other banks and finan- range from foreign multi-existing relationships and products they need to be cial institutions, and national corporations to attracting new ones. competitive in today' individuals sophisticated individual marketplace. For example, ~ Product developtttent: investors seeking to The product source: Investment Banking cre- enhance their financial stment Banking Working closely with ated a highly successful Treasury to design, returns through invest-financing techniques program involving the structure and deliver ment opportunities in ovide special benefits to packaging and placing of new products to rela- the U. S.
customers and Bank of tax-exempt Adjustable tionship officers Boston alike. For our cus- Rate Industrial Revenue The funds source:
Bonds to meet the needs In fulfillingits expand- Treasury tomers, they promise new ed investment banker role,
~ solutions to financing of corporate customers for Bank of Boston has sev- Treasury is the banker for problems and offer ways low-cost financing of capi- the Corporation: It is the eral distinct advantages.
to tailor financing more tal investment. clearing house for all First, unlike large invest-closely to a corporation's Investment Banking oper- funds. In executing this ates in five discrete areas: role, it must balance Peter F. Groff, Government Securities head, monitors price movements Ricltard L. Timpson, Treasury head, discusses interest rates at bank offi-cers meeting t ~
Thomas A. Fransioli, Investmna Banking head
requirements of its provid- alone businesses: It is a goals of Bank of Boston is ers of funds depositors major U.S. government to spark intergroup syn-and investors for mar- bond dealer; the premier ergy by making the ket rates of return with underwriter of tax-exempt strengths of one valuable the needs of borrowers- securities in the region; and easily accessible to the the asset generators of the New England's primary others.
other groups for funds foreign exchange trader, But even more impor-at the lowest possible cost. and an important partici- tant than our intergroup To meet this challenge, pant in national money strength is our unprece-substantial investments markets. The "Boston dented flexibility a are being made in sophis- Option," an innovative deliberate outgrowth of ticated management infor- and highly flexible foreign the strategic planning pro-mation systems, enabling exchange product that cess. The financial ser-a worldwide approach to insulates customers from vices industry is one of asset/liability management rate fluctuations, was the country's most fluid, and aggressive develop- introduced in 1984 and and few financial institu-ment of untapped or found high customer tions can afford to limit underutilized sources of acceptance. In addition, their direction or their funds. Treasury provides a broad vision by setting their Treasury also works range of investment man- sights on a single, nar-closely with Investment agement and advisory ser- rowly defined goal. On Banking to create new vices to corporations and the contrary, we have financial products and correspondent banks worked to assure that we services, such as interest throughout New England. are among the small num-rate swaps, where floating ber of leaders who will rate loans are converted to Bank of Boston: New one day be the backbone fixed rate, and loan partic- opportunities, new of financial services in the ipation programs, designed flexibility United States.
to enhance both our rela- Today, Bank of Boston While Bank of Boston's tionships with corporate possesses the organiza-new organization should borrowers and our fee tional, analytical and tacti-facilitate maximum profit-income. cal tools to reach that In addition, Treasury ability in each of our busi-goal.
nesses, it also creates manages several stand-channels of interaction among the five Groups. In fact, one of the primary gl.~gI~ 70
<<J k f Constance Johnson lists ntunieipat bond sales
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BANK OF BOSTON CORPORATiON Consolidated Selected Financial Data Years Ended December 31 Fiv Com (in millions) 1984 1983 1982 1981 1980 1979 Growth ~
Income statement data:
Interestincome $ 2,922.4 $ 2,333.2 $ 2506.3 $ 2,748.5 $ 2,163.7 $ 1,513.9 14.1%
Interest expense 2,252.5 1,726.8 1,952.2 2,221.6 1,697.8 1,109.3 15.2 Net interest revenue 669.9 606.4 554.1 526.9 465.9 404.6 10.6 Provision for credit losses 180.0 54.0 48.0 48.0 48.0 49.0 29.7 (I) ~
Net interest revenue after provision for credit losses 489.9 552.4 506.1 478.9 417.9 355.6 6.6 Other operating income 479.8 266.0 227.7 195.4 166.8 120.9 31.7 (2)
Other operating expense 722.2 595.2 549.2 500.2 421.0 328.8 17.0 Income before income taxes 247.5 223.2 184.6 174.1 163.7 147.7 10.9 Provision for income taxes 83.4 87.5 60.2 55.5 61.6 63.5 5.6 Net income $ 164.1 $ 135.7 $ 124.4 $ 118.6 $ 102.1 $ 84.2 14.3 BaIance sheet data:
Average for the period:
Cash and due from banks $ 1,434 $ 1,177 $ 1,166 $ 1,209 $ 1,297 $ 1,288 2.2 Interest bearing deposits in other banks r 2,420 2,940 2,984 2,452 2,781 2,324 Federal funds sold and resale agreements 286 189 222 177 159 297 (.8 Trading account securities 413 427 272 164 ill 123 27.
Investment securities 1,018 1,167 1,296 1,667 1,926 1354 (5.
Loans and lease financing 13,210 11,076 10,125 9,050 8,046 6,524 15.2 Other assets 2,038 1,845 1,441 1,212 1,064 899 17.8 Total assets $ 20,819 $ 18,821 $ 17,506 $ 15,931 $ 15,384 $ 12,809 10.2
~
Deposits $ 13,804 $ 12,001 $ 11,436 $ 10,427 $ 9,727 $ 8,353 10.6 Federal funds purchased and repurchase agreements 2,345 2,709 2,389 2,218 2,666 1,721 6.4 Notes and other funds borrowed 1,958 1,573 1,530 1,384 1,293 1,187 10.5 Other liabilities 1,621 1,598 1,305 1,127 1,009 929 11.8 Stockholders'quity 1,091 940 846 775 689 619 12.0 Total liabilities and stockholders'quity $ 20,819 $ 18,821 $ 17,506 $ 15,931 $ 15,384 $ 12,809 10.2 At December 31:
Loans and lease financing $ 14+89 $ 11,896 $ 10,714 $ 9,551 $ 8,848 $ 7,369 14.6 ~
Total assets 22,079 19,538 18,267 16,809 15,948 13,760 9.9 Deposits 15,258 12,381 11,674 11,020 10,815 8,965 11.2 Stockholders'quity 1,185 1,007 884 821 730 649 12.8 (1) Growth rate calculated without the $ 100 million (2) Growth rate calculated without the $ 177 million gain special provision for credit losses in 1984 is 10.3%. from sale of headquarters building in 1984 is 20.1%. ~
Financial Review 23
0 BANK OF BOSTON CORPORATION Years Ended December 31 Five Year Compound 1984 1983 =1982 1981 1980 1979 Groroth Rale Per common share:
Net income $ 8.35 $ 7.40 $ 6.67 $ 6.25 $ 5.48 $ 4.56 Dividends declared Book value at December 31 2.34 58.75 2.17 53.26 1.97 48.70 1.73 43.02 1.52 38.66 19'2.9%
1.40 35.14 10.8 10.8 Market value at December 31 39F4 40'h 33s/4 30K 23y4 15.8 Average common shares outstanding (in thousands) 19,117 18,350 18,661 18,975 18,646 18,469 Common stockholders of record (1) 15,138 15,983 16,630 17,450 18,767 19,320 (4.8) 0 Selected ratios:
Return on average assets (Net income to average assets) .79% .72% .71% .74% .66% .66% 3.7 Return on average common equity (Net income applicable to common stock'to average common stockholders'quity) 15.19 14.44 14.70 15.30 14.83 13.61 2.2 Common dividend payout ratio (Dividends declared per common share to net income per common share) 28.02 29.32 29.54 27.68 27.74 30.70 (1.8)
Average stockholders'quity to average assets 5.24 5.00 4.83 4.86 4.48 4.83 1.6 ary capital ratio at ecember 31 (2) 6.87 5.85 5.52 5.58 5.22 5.32 5.2 Market value/book value at December 31 67.66 76.04 69.30 70.70 61.43 54.54 4.4 Double leverage at December 31 (3) 110.16 103.81 102.88 101.93 104.52 111.22 (2)
Total assets to stockholders'quity at December 31 18.62 X 19.40 X 20.66 X 20.49 X 21.85 X 21.20 X (2.6)
Price/earnings ratio at December 31 4.76 5.47 5.06 4.86 4.33 4.19 2.6 (1) The number of stockholders of record includes banks subsidiary, thus adding to the subsidiary's borrowing and brokers who act as nominees, each of whom may power (leveraged twice). The ratio is derived by 0 represent more than one stockholder. dividing equity investment in subsidiaries less (2) Computed based on regulatory guidelines in effect at goodwill by the parent company's net worth less December 31, 1984. goodwill.
(3) Double leverage describes in percentage terms the (4) Share amounts prior to 1982 have been restated to extent to which equity investments in subsidiaries are reflect the three-for-two stock split approved by financed with parent company debt. This situation stockholders on March 31, 1982.
e occurs when a parent company borrows funds (leveraged once), then invests the funds in equity of a 25
/
Net Income This section presents management's discussion' 5 hkilllons analysis of the results of operations for the last two years and financial condition at the end of 1984 for Bank of Boston Corporation. The Corporation's net 140 income is derived principally from the operations 120 of The First National Bank of Boston and its subsidiaries. In order to understand this section in ~
context, it should be read in conjunction with the 80 Financial Statements and Statistical Data on pages 44 through 82 of this report.
40 Summary Net income in 1984 increased 21% from 1983. In ~
20 December 1984, the Boston headquarters building at 100 Federal Street was sold and a $ 177 million pre-1979 1980 1981 1982 1983 1984 tax ($ 105 million after-tax) gain was reported in 1984. The building will continue to be known as 1979 1980 1981 1982 1983 1984 the Bank of Boston Building and house the 0 International 20% 22% 35% 20% 26% 4%
Corporation's world headquarters. Other significant
'
~ United States 80 78 65 80 74 96 transactions during 1984 were a $ 100 million special provision for credit losses, a $ 16 million write-down of fixed rate mortgages which the Corporation decided to liquidate, a $ 5 million group of charges related to the restructuring of certain businesses in connection with strategic planning initiatives an
$5 million year-end contribution to the Corporati charitable foundation. The net effect of these transactions was to increase earnings per common share in 1984 by $ 2.36.
Net income per common share was $ 8.35 or 13%
higher in 1984. The lower per share percentage
'
increase when compared with net income reflects the effect of preferred dividends in 1984 and greater average common shares outstanding. The dividends on the preferred stock, which was issued in connection with the acquisition of Casco-Northern Corporation (Casco), have been more than covered ~
by Casco's earnings since acquisition.
Exclusive of the transactions described above, increases in net interest revenue and other operating income were more than offset by higher other operating expense and a larger provision for credit losses.
Net income in 1983 increased 9% from 1982 because of increases in net interest revenue and other operating income, which were partially offset by higher other operating expense, a higher provision for income taxes and an increase in the provision for credit losses.
As depicted in the Net Income chart, net income from United States and International Operations varied significantly in the past three years. Unitet States Operations, including the gain on the sale of 26
Q tt. dquarters building, contributed 96% of total Average Earning Assets net income in 1984, 74% in 1983, and 80% in 1982. 5 Billions United States Operations in 1984 increased $ 58 18 million to $ 158.2 million while International 16 Operations decreased $ 30 million to $ 5.9 million. 14 For additional information relating to the geographic 12 Q segmentation of operations refer to pages 66 10 and 67.
In March 1984 Casco, a Maine-based bank holding company, became a subsidiary of Bank of Boston Corporation. The acquisition was accomplished through the issuance by the Corporation of 1,045,712 Q shares of adjustable rate cumulative preferred stock valued at $ 52 million at the time of acquisition. 1979 1980 1981 1982 1983 1984 Casco added $ 522 million to loans and leases, $ 654 0 International million to deposits, $ 749 million to total assets and S United States
$ 52 million to total stockholders'quity. In July 1983, Stockton, Whatley, Davin & Company (SWD), a Florida-based p acquired for mortgage banking company, was
$ 120 million in cash. At the time of acquisition, SWD was servicing approximately $ 4 billion of mortgage loans for third party investors.
Financial Statement Footnote 21 contains additional information on the acquisition of Casco and a Q d'on of the pending acquisitions of Colonial p, Inc. and RIHT Financial Corporation.
ecember 31, 1984 the Corporation was the 16th largest bank holding company in the United States with total assets of $ 22.1 billion, a 13%
increase compared with 1983. Loans and leases at Q December 31, 1984 were $ 14.6 billion, up 23% from a year ago and deposits increased 23% to $ 15.3 billion.
Stockholders'quity was higher by 18%, totalling
$ 1.2 billion at December 31, 1984. Return on average common equity was 15.19% in 1984 as compared with 14.44% in 1983. The return on Q average assets increased in 1984 to .79% as compared with .72% in 1983.
The following is a more detailed discussion of the Corporation's operating results and financial condition.
Q Results of Operations Net Interest Revenue (ful!y taxable equivalent basis)
This discussion of Net Interest Revenue should be read in conjunction with the Average Balances and Interest Rates and Interest Differential Analysis and the Change in Net Interest Revenue-Volume and Q Rate Analysis on pages 61 through 65. For pl ses of this review, income that is either exempt deral income taxes or taxed at a preferential s been adjusted to a fully taxable equivalent basis. The adjustment of income to a fully taxable 27
Net IntereSt ReVenue Taxable Eqniualent equivalent basis has been calculated using a tax r ~
s hlullons of 52.8%, which is equal to the statutory federal 800 income tax rate adjusted for applicable state and local income taxes net of the related federal tax
/00 benefit.
600 The following table shows an analysis of net interest revenue between United States and
~ K I SOO International Operations. It also presents the 400 adjustment to reflect net interest revenue on a fully taxable equivalent basis.
300 Years Ended December 31 200 (in millions) 1984 1983 1982 100 United States Operations:
Net interest revenue 1979 1981 1982 before provision for 1980 1983 1984 uncollectible income $ 488.3 $ 403.0 $ 384.3 8 International Adjustment of tax-
~ United States exempt income to a fully taxable equivalent basis 48.7 47.2 67.7 ~
Net interest revenue fully taxable equivalent basis before provision for uncollectible income 537.0 450.2 452.0 Less: Provision for uncollectible income 24.4 5.4 2
~
Net interest revenue fully taxable equivalent basis 512.6 444.8 428.3 International Operations:
Net interest revenue before provision for uncollectible income 228.5 223.8 207.7 Adjustment of tax-exempt income to a fully taxable equivalent basis 1.7 2.8 Net interest revenue fully taxable equivalent basis before provision for uncollectible
. income 230.2 226.6 207.7 Less: Provision for uncoflectible income 22.5 14.9 14.2 Net interest revenue-fullp taxable equivalent basis 207.7 211.7 193.5 Consolidated net interest revenue-fully taxable equivalent basis $ 720.3 $ 656.5 $ 621.8 28
ompared with 19S3 Average Loans and Leases
$ Billions Net interest Revenue from United States Operations 14 Net interest revenue from United States Operations 12 improved $ 67.8 million (15%) compared with 1983. 10 Revenue from Casco as well as a $ 1.9 billion increase in average loans and lease financing, e including Casco, and improved loan fees of $ 19.9 million (51%), including Casco, were responsible for '-4," a.>>'
the rise. These increases were moderated by a 'lg higher provision for uncollectible income and 1979 1980 1981 1982 1983 1984 narrower spreads.
Casco's net interest revenue for the nine months 0 since acquisition, was $ 33 million or about one half 1979 1980 1981 1982 1983 1984 Vnited States:
of the total domestic increase. At year end, Casco's earning assets amounted to $ 747 million, including ~ Personal banking 5% 5% 5% 5% 4% 5%
outstanding loans and leases of $ 625 million. Real ~ Asset. based financing 8 7 6 6 6 7 estate loans and commercial and industrial loans ~ Real estate 9 9 10 12 13 16 each accounted for approximately one-third, while 0 personal banking amounted to about one-fourth of 9 Commercial lending 39 39 40 40 40 40 9 International 39 40 39 37 37 32 Casco's total loan portfolio.
Overall, loan and lease financing volume, which increased 27%, was strongest in the areas of real estate, commercial lending and asset-based financing.
eal estate lending continues to report strong 0 th as its loan volume increased by over 35%.
construction lending was once again a major reason for this improvement, reQecting strong demand for new loans from existing customers as well as normal advances to complete projects originated in previous years. The increase also e reQected the first full year of having SWD as a subsidiary and from the addition of Casco.
Commercial lending benefited from the generally improved economy which brought about increased borrowings by existing customers as well as new business. Some areas, such as the Massachusetts e Corporate Lending function which serves the state' small and middle sized businesses, also carried out a more selective and productive marketing'effort. This function reached its goal of doubling its volume in 1984.
The asset-based financing function specializes in secured financing techniques such as factoring, receivable and inventory financing and chattel mortgage loans. In 1984, because of their knowledge and expertise in these types of financing, this function was able to increase its average loan portfolio by over 50%.
29
The increase in loan fees was primarily ~
attributable to higher commercial loan fees of $ 7 Nonperforming Loans and Leases n d Ean' peeslsw<E/fal million, commitment fees of $ 5.2 million and fees Cents S hllllions from BancBoston Mortgage Corporation of $ 1.8 450 million. SWD and Casco added $ 2.9 million and
$ 1.5 million, respectively.
400 Moderating the positive effects of loan growth and ~
350 higher fees was a $ 19 million increase in the provision for uncollectible income. This rise resulted 300 from a combination of factors including an increase 250 in nonaccrual loans and leases to $ 244 million at December 31, 1984 from $ 185 million last year; a 200 higher average base lending rate during the year; ~
150 and lower recognition of cash previously received and deferred on loans that had been on nonaccrual.
100 100 75 Interest rates, which affect net interest revenue, at the end of 1984 were approximately the same as at
[
50 50 25 the end of 1983, although the average base lending rate rose 126 basis points during 1984. Specifically, 1979 1980 1981 1982 1983 1984 the base rate began the year at 11%, where it
~
4 Principal at Year End E EPS Effect remained until the end of the first quarter when it increased 50 basis points. In the second quarter, it rose steadily until it reached a high of 13%, a level that was maintained throughout the third quarter.
During the fourth quarter, the base rate fell to its ~
year end level of 10.75%.
The effect of movements in the base rate are indicated in changes in average rates on earning assets and interest bearing liabilities. During the first quarter, the yield on earning assets remained constant, but the average cost of funds rose 34 basis points, thus causing narrower spreads that stabilized
~
in the second quarter. Spreads were further constricted in the third quarter as increases in the cost of funds out-paced those for earning assets. In the fourth quarter, spreads increased as the cost of funds dropped faster than yields on earning assets.
The average spread for the year decreased to 3.02%
~
from 3.31% for 1983 as the turnabout in the fourth quarter spread was not enough to offset earlier declines. Interest rate margin decreased 30 basis points in 1984, to 4.81% from 5.11%. See page 61 for definitions of interest rate spread and margin.
30
e tterest Revenue front International Operations Interest Rate Spread Percent Net interest revenue from International Operations decreased $ 4 million. This decline was the result of 3.5 a $ 7.6 million increase in the provision for 3.0 uncollectible income, reflecting higher interest rates and a $ 83 million rise in the level of loans and 0 leases on nonaccrual. Net interest revenue before the provision for uncollectible income increased $ 3.6 million. Average earning assets declined $ 406 1.5 million, primarily because of a $ 678 million decrease 1.0 in average interest bearing deposits in other banks reflecting a planned decrease in international 0.5 0 placements. This was partially offset by a $ 235 million increase in average loans and leases. 1979 1980 1981 1982 1983 1984 Net interest revenue from operations in Argentina ~ United States decreased $ 16.4 million (37%) from 1983 resulting, in 0 Consolidated part, from additional governmental regulations which 0 International limited local currency loan spreads. Furthermore, 0 the increased level of cross-border nonaccrual loans Interest Rate Margin negatively affected Argentine results by $ 8.6 million. Percent Brazil's net interest revenue was down $ 2.6 million, or 6%, partly reflecting an increase in the provision for uncollectible income of $ 1.9 million.
A the result of changes in local market conditions, 0 I rong momentum and favorable funding ons taken in 1983 did not continue throughout 1984.
Other Latin American operations, on a taxable equivalent basis, recorded an $ 11.4 million (29%)
gain in net interest revenue primarily associated 0 with the favorable effect in 1984 of the Corporation's 1979 1980 1981 1982 1983 1984 Nassau-based funding operations with other regions. ~ United States The Corporation's European operations reported a 0 Consolidated
$ .6 million increase in net interest revenue over 0 International 1983. Improvements were realized in the United Kingdom, primarily due to loan volume, and in the e Milan Branch, which concluded its first full year of operations. These were moderated by declines in France as a result of a decrease in inter-bank activity, and in Germany as the favorable spreads of 1983 were unable to be matched in 1984.
Net interest revenue from the Asia/Pacific region was down $ 1.4 million or 6% in 1984. The Corporation reduced operations in Australia in compliance with governmental restrictions, which caused lower loan volume and reduced net interest revenue. However, these restrictions were lifted in November of 1984, and the Corporation's Australian e affiliates are in the process of returning to full operations.
Other regions recorded an increase of $ 4.4 million Finally, net interest revenue was helped by wi ~
in net interest revenue. A major contributor to this spreads. Interest rates remained relatively stable increase was the growth in volume of Canadian throughout 1983; however, average interest rates lending operations. were significantly lower than in 1982. Specifically, In conjunction with strategic planning goals, the the base lending rate began the year at 11.5%,
Corporation continues to seek selective expansion in dropped to 10.5% at the end of February and nations where our presence has previously been remained at that level until early August, when it established. In 1984 a branch office was opened in rose to the year-end level of 11%. The average base Turkey and locations were added in Chile, Uruguay rate decreased approximately 400 basis points and Argentina. compared with 1982. Cost of funds were in the 9%
to 10% range throughout 1983, a decline of about 1983 Compared with 19S2 275 basis points from the prior year. However, Net Interest Revenue from United States Operations average interest rate spread rose 40 basis points from 2.91% in 1982 to 3.31% in 1983 as the decline in the Net interest revenue from United States Operations yield on earning assets was exceeded by a greater increased $ 16.5 million (4%), primarily as a result of reduction in the cost of funds. The lower interest a higher volume of loans, a lower provision for rate environment resulted in a 22 basis point decline uncollectible income and wider spreads. This was in average interest rate margin as the relative value moderated by the effects of lower average interest of free funds declined.
rates in 1983. Average loans and leases increased
$ 690 million. The 11% improvement in loan and Net Interest Revenue from International Operations lease volume was mainly generated in the areas of real estate and commercial lending. International net interest revenue rose more than Real estate lending showed strong growth with a 9% when comparing 1983 with 1982. This $ 18.2 loan volume increase of over 30%. This expansion million improvement was derived from nearly all was primarily the result of major increases in the regions where the Corporation conducted busine construction loan portfolio reflecting active and reflected an increase in average earning asset
$ 232 million (3%) and an increase in the interest rate development of customers in Massachusetts and the regional offices across the country. The Corpora- margin of 17 basis points.
tion's mortgage banking subsidiaries also played an Argentina's net interest revenue declined $ 5.4 important role. Loan volume of Mortgage million (11%), stemming from restricted volume Corporation of the South increased substantially. growth and narrower spreads that affected the The acquisition of SWD in 1983, added an average banking industry in that country in general.
of more than $ 60 million to total loans. Net interest revenue from Brazil improved $ 9.9 Commercial lending volume reflects diversification million (28%). This increase was attributable to a in both a wide range of industries and in geographic higher volume of loan activity and improved spreads locations. The Corporation's offices throughout the resulting from favorable positions taken in Brazil's nation offer expertise to customers in such fields as money markets.
high technology, communications, entertainment and Other Latin American operations, on a taxable insurance. Also, this expertise extends to the ability equivalent basis, recorded a $ 5.4 million (16%) gain to offer customers a variety of financing packages. A in net interest revenue. In addition to new aircraft 9% improvement in commercial lending was mainly leasing activity in Mexico and the Caribbean, because of expanded marketing efforts and increased operating conditions in Chile were favorable, borrowings by existing customers. resulting in higher earning assets and wider spreads.
Net interest revenue also benefited from a decrease In Europe, the increase of $ 5.4 million (12%) was of $ 18.3 million in the provision for uncollectible the result of greater loan volume and lower funding costs in Germany and United Kingdom.
income. This decline resulted from a lower average base lending rate as well as greater recognition of The Asia/Pacific region experienced a 16% increase cash previously received and deferred on loans that from $ 19.6 million in 1982 to $ 22.7 million in 1983, had been on nonaccrual. The level of domestic as the operations in Australia, Taiwan and Korea ~
nonaccrual loans rose slightly in 1983. turned in favorable results.
32
Q ing 1983, new branches were established in PrOViSiOn fOr Credit LOSSeS Wed Net Credit Losses Italy and Curacao (Netherlands Antilles) and $ hf iiiions additional locations were added to our existing networks in Chile, Panama, Paraguay and Uruguay.
150 Also, a new representative office was opened in Bahrain.
0 100 Provision for Credit Losses-The 1984 provision for credit losses was $ 180 50 million, including the $ 100 million special provision, as compared with $ 54 million in 1983. The increase reflects the higher level of 1984 net charge-offs and 1979 1980 1981 1982 1983 1984 the Corporation's concern, shared with growing segments of the banking industry, about general 1979 1980 1981 1982 1983 1984 worldwide economic conditions. These charge-offs, ~ Provision Ior Credit Losses together with the additional provision for credit United States 67% 33% 5S% 23% 42% 62%
losses, are in line with the Corporation's aggressive International 33 67 45 // 58 38 charge-off policy and conservative approach to the G Net Credit Losses United States 73 36 53 26 51 57 credit loss reserve. International 27 64 4/ 74 49 43 The consolidated reserve for credit losses as a percentage of loans and lease financing was 1.66% at December 31, 1984, up from 1.14% last year. The special provision for credit losses was allocated to
'
U States and International Operations on the Q Q f their respective outstanding loan balances.
ited States Operations, the reserve was 1.49%
at year-end 1984, an increase from last year's 1.03%.
The International portion of the reserve was 2.08%
for 1984, up from 1.33% a year ago. The changes in the total provision allocated to United States Operations and International Operations also reflect changes in the amounts of net credit losses. Net credit losses in the U.S. were $ 45.3 million compared with $ 22.5 million last year. Internationally, these losses increased to $ 34.7 million this year from $ 21.7 million in 1983. The increases in net credit losses Q were caused by the sharp deterioration during the fourth quarter of a limited number of loans in both the domestic and international portfolios.
The Corporation's aggressive charge-off policy is reflected in the relatively high ratios of charge-offs and recoveries. Consolidated net credit losses as a
~ percentage of average loans and lease financing was
.61% in 1984, up from .40% in 1983. The Corporation's recoveries as compared with credit losses decreased to 24%, as compared with 28% a year ago, as the rise in credit losses outpaced the increase in recoveries. Over the last five years,
~ however, this ratio has approximated 30%.
33
Other Operating Income and Expense factoring fees of $ 3.2 million and letter of credi ~
commissions of $ 2.8 million. Internationally, the Other important sources of income for the Argentine branch contributed $ 6.8 million to the Corporation, in addition to interest-bearing activities, increase, as a result of a greater demand for are its wide range of fee-based services and its documentary letters of credit and acceptances, as well global participation in financial markets. To remain as by offering new services, such as cash competitive, these services require specialized management.
personnel and equipment that generate related Mortgage servicing fees contributed $ 14 million to expenses. the increase in 1983, reflecting the acquisition of Other Operating Income: SWD in July of that year. Additionally, domestic increases in letters of credit, demand deposit and 1984 1983 1982 factoring fees added $ 10.2 million to the 1983
$ 479.8 million $ 266.0 million $ 227.7 million improvement.
Other operating income excluding the building Trust and Agency Fees:
1983 1982 sale gain and the write down of mortgages held for 1984 sale, increased 20% to $ 318.7 million in 1984. On $ 71.3 million $ 59.5 million $ 51.9 million the same basis, other operating income was 31% of To service a broad range of both private and the total of net interest income and other operating corporate customers, the Corporation offers its income as compared with 29% and 27% for the two expertise in a variety of activities generating trust previous years. The rising percentage is an and agency fees. These services include managing indication of the importance of fee-generating personal trusts and estates, administering pension activities as a source of income for the Corporation.
and profit-sharing plans, managing endowments, Gain on Sale of Building:
On December 31, 1984, the Bank sold its headquarters building in Boston for $ 363 million.
servicing mutual funds, and acting as a securities transfer agent or registrar.
The greater value of assets held in 1984 was
~o
~
This resulted in a gain of $ 295 million, of which responsible for the higher fees earned from the
$ 177 million, or $ 105 million after tax, was management of personal trusts of $ 2.9 million and recognized in 1984's income. The additional amount corporate trusts of $ 2.1 million. Additionally, the of $ 118 million was required to be deferred and 1984 acquisition of Casco contributed $ 1.7 million.
amortized over the initial terms of the lease Higher fees in both personal trusts, as well as ~
agreement. For additional details on this transaction, custody and operational fees, increased the income of see Financial Statement Footnote 8. 1983.
In 1984, price increases and TEFRA related special Financial Service Fees:
work performed by the stock transfer department 1984 1983 1982 accounted for $ 2.3 million of the total $ 5.1 million
$ 161.8 million $ 125.0 million $ 100.7 million improvement in mutual fund and stock transfer ~
The Corporation provides a number of services services fees. These accounts increased $ 3.8 million such as: letter of credit and acceptance financing; in 1983, which resulted from a higher volume of business.
freight payment processing; payroll preparation and other data processing activities; factoring and Trading Account Profits and Cotnntissions:
mortgage servicing; and maintenance of demand 1984 1983 1982 deposits along with various other services. The fees million
$ 7.2 million $ 9.8 million $ 14.5 and commissions earned from these activities comprise financial service fees. In the past three The Corporation is very active in worldwide years, these fees have accounted for approximately money markets, as both an issuer and a dealer.
one-half of total other operating income (not Income is earned through the net gains and including the gain on the building sale in 1984 as commissions on the sale of securites from our dealer mentioned previously). portfolios. Interest rate and related price changes in Domestic increases in 1984 were primarily the securities markets are primarily responsible fo attributable to higher demand deposit fees of $ 7.3 fluctuations which occur.
million, mortgage servicing fees of $ 3.5 million, 34
decline in 1984 reflects the upward trend in offsetting these declines, was the gain on the sale of domestic interest rates in the first half of the year. Commodore Corporation warrants and venture capital Also, a $ 5.6 million decline was repor'ted in the securities of $ 12.2 million.
trading account of Brazil, which was caused by both Other Operating Expense:
the absence of revaluation gains that were recorded in 1983, as well as the effects of market declines on 1984 1983 1982 Othe trading portfolio during 1984. $ 722.3 million $ 595.2 million $ 549.2 million Domestic interest rates stabilized in 1983, reducing trading account profits to a level more in line with Other operating expense rose 21% in 1984 as previous years. The establishment of the Brazilian compared with 8% in 1983. Substantial increases trading account, which reported profits of more than were reported in all categories with the exception of
$ 3 million, moderated the decrease in the domestic employee benefits. The acquisitions of Casco and O income. SWD were major contributors to these increases.
Investnrent Portfolio Gains (Losses): The Corporation is a service-oriented business 1984 1983 1982 which requires a relatively high number of employees to perform these services. Thus, it is
$ (.5) million $ 3.9 million $ (11.2) million expected that salaries and employee benefit costs This category consists of pre-tax gains and losses would be the largest components of total other 4 from the sale of securities held in our investment operating expense.
portfolio. Domestic salaries were up 22% and 14% in 1984 The net loss in 1984 was mainly the result of and 1983, respectively. These increases reflect losses incurred on the sale of U.S. Treasury securities additional staff, primarily from the acquisitions of being greater than the gains recorded on the sale of Casco and SWD as well as merit and promotional e 't securities. In 1983, gains were recorded from increases for existing staff. Salaries for overseas 0 of equity securities and other securities held employees rose 12% in 1984 and declined 3% in I rseas offices. These gains were partially offset by a loss on the liquidation of the Bank's state and 1983. The Argentine government policy of mandating salary increases to keep pace with that municipal securities portfolio. country's inflation was primarily responsible for the rise in 1984. The decrease in 1983 resulted from the Otlrer Income: effect of devaluation in certain Latin American e 1984 1983 1982 countries more than offsetting increases in normal
$ 62.8 million $ 67.8 million $ 71.8 million annual compensation.
Other income consists of various fees and The total number of employees grew 8% in 1984 commissions earned on foreign exchange activity, and 12% in 1983. At year end, total employees credit card services and sales of various securities as were:
1984 1983 1982 well as income from other sources. For further details see Financial Statement Footnote 14. 16,000 14,800 13,200 In 1984 other income was down $ 5 million as a result of a $ 16 million loss recorded in connection In past years, employee benefit costs have with the Corporation's decision to sell approximately generally risen similarly to salaries, as many of these
$ 150 million of its fixed rate mortgages. Also benefits are directly related to salary levels or the contributing to the decrease was the absence of number of employees. However, in 1984, even
~ 1983's $ 12.2 million gains from the sale of though salaries and the total number of employees Commodore Corporation warrants and sales of were up, benefit costs remained at about 1983 levels.
various securities by venture capital subsidiaries. This resulted principally from reduced thrift-These factors were partially offset by higher credit incentive costs, which are a function of the level of card and other fees of $ 11.1 million and lower net earnings from normal operations, and revisions to translation/hedge losses of $ 6.3 million. certain other benefit plans.
In 1983, net translation/hedge losses were $ 6.9 Equipment expense was higher in 1984 by $ 14.8
'on greater than in 1982 and losses relating to million. The domestic increase included depreciation e of mortgages were $ 4.9 million. Partially expense of $ 5.1 million and repairs and maintenance 35
Geographic Distribution of Average Assets of $ 1 million, as well as $ 2.9 million and $ 1.5 ~
million from the additions of Casco and SWD, 4% Argentina respectively.
Other non-interest expenses included a special $ 5 3% Brazil million contribution to the Corporation's charitable 6% Other Latin America foundation, as well as charges of about $ 5 million associated with current strategic planning initiatives.
13% Europe Footnote 17 to the Financial Statements further
~
8'sia/Pacific details other non-interest expenses which have risen with the Corporation's need to support expanded 4/o Other Regions operations, and with generally increased prices for 62% United States goods and services.
Income Taxes Provisio/t for Income Taxes:
19S4 1983 1982
$ 83.4 million $ 87.5 million $ 60.2 million The effective tax rate in 1984 was 34%, down from ~
39% in 1983 and up from 33% in 1982. The decreased effective tax rate in 1984 was the result of applying the lower capital gains tax rate to the gain on the sale of the Corporation's headquarters building. The higher effective tax rate in 1983 reflected a reduction in the ratio of tax-exempt t '
taxable income. The Corporation's decision earl 1983 to substantially reduce its holdings of tax-exempt assets was the reason for the reduction in tax-exempt income in that year. Financial Statement Footnote 11 contains additional information with respect to the Corporation's income taxes.
Financial Condition Liquidity It is the Corporation's objective to meet at a reasonable cost its cash needs, which arise primarily ~
from new or additional loans and leases, the maturing of liabilities used to fund assets and the withdrawal of deposits. Liquidity management requires the ability to obtain funds for various terms.
As the Geographic Distribution of Average Assets chart indicates, United States Operations accounted ~
for 62% of total assets while International's asset base is diversified to many parts of the world. It is also the Corporation's objective to fund assets to the maximum extent possible with liabilities in the same currency so as to reduce transfer risk exposure.
The Corporation's need for funds has increased, as ~
is depicted in the Average Total Assets Distribution chart, at a five year annual compound growth ra 10%. This chart also shows that the greatest us funds was for loans, which grew 19% from 1983 a 36
more than doubled in the past six years. Average Total Assets Distribution e In icative of the liquidity of the loan portfolio, the S Billions percentage of total loans maturing in one year or 22 less was about 60% at December 31, 1984. 20 Funds obtained to support asset growth are 18 detailed in the Average Total Sources of Funds chart. 16 This chart indicates interest bearing funds, which 0 rose 10% in 1984 from 1983, to be the major source.
Interest bearing deposits, with a five year compound 12 growth rate of 12%, have remained a stable source of 10 funds. Money market deposit accounts (First Rate Accounts) have been an important source of funds, totalling $ 2.2 billion and $ 1.2 billion at the end of 0 1984 and 1983, respectively. These funds are used as a substitute for certificates of deposits and are considered more stable. In order to secure funds at 1979 1980 1981 1982 1983 1984 the lowest possible cost, the Corporation maintains ready access to both Domestic and International 1979 1980 1981 1982 1983 1984 markets.
0 The Corporation possesses an excellent reputation
~ Loans and Financing Lease 51% 52% 57% 58% 59% 63%
in the worldwide money markets, thus enhancing its D Interest Bearing Deposits in Other Banks 18 18 15 17 16 12 ability to obtain funds. The Corporation continues D Investment Securities to be an active dealer in bank and government and Other Earning Assets 14 15 13 10 9 8 obligations and an issuer of repurchase agreements, D Acceptances 4 4 4 5 6 5 dollar notes, commercial paper and other money 0 et instruments. A worldwide branch network
~ Other Assets 13 11 11 10 10 12 s the Corporation a 24-hour a day trading presence in the various international funding Average Total Sources of Funds markets such as Boston, New York, London, S Billions Singapore and Hong Kong. Should it be necessary 22 to add funds rapidly, sufficient residual capacity 20 e remains in these markets to meet funding needs. 18 16 Managing Interest Rate Risk Interest rates fluctuated more in 1984 than in 1983 12 but not with the volatility that characterized the 10 1980-1982 period. Thus, as it has been in past years, flexibility in the management of interest rate risk was very important to the profitability of the Corporation.
Interest rate risk arises when an asset matures or when its rate of interest changes in a time frame 1982 1983 1984 1979 1980 1981 different from that of the supporting liability. For the most part, the Corporation does not match each 1982 1983 1984 1979 1980 1981 of its assets with specific liabilities, however, the
~ Interest Bearing aggregate of all its assets and liabilities is used to Deposits 38% 37% 38% 39% 44% 45%
determine overall interest rate risk within several D htoney Market Funds specific time frames. This interest rate risk is and Olher Borrowings 32 36 35 35 29 28 referred to as the "interest sensitivity gap", and is D Non Interest Bearing 14 Deposits 18 16 15 13 13 essentially the difference between the amount of D Acceptances and est-sensitive assets and interest-sensitive Other Liabilities 7 7 7 8 9 8 ities maturing during a specific time frame. A D Stockholders'quity 5 4 5 5 5 5 sitive" gap results when the amount of interest-37
Domestic Spread and Base Rate sensitive assets exceeds that of interest-sensitive quarterly Awrages liabilities; a "negative" gap results when the amoun Percent of interest-sensitive liabilities exceeds that of interest-sensitive assets.
Management uses gap analysis to monitor the potential effect of rate changes on net interest revenue. While the Corporation monitors a number of gap positions in managing interest rate risk, particular attention is paid to the cumulative ninety day gap. Ninety days is believed to be the optimal 14 period to exercise control of interest rate risk.
Ninety days is long enough to allow an ordered 12 restructuring of asset and liability positions and short 10 enough to allow those actions to positively affect current performance in a changing rate environment.
Dec. 82 Dcc. 83 Dec. 84 The Corporation has sought to maintain flexibility in its gap positions in order to take advantage of g Spread both short-term and long-term changes in market P Base Rate rates. This flexibility has also been accomplished, in part, by maintaining short-term maturities in a Average Domestic Gap portion of the Corporation's assets and liabilities, S Millions including the relatively short average maturity of its 2400 fixed-rate U.S. Treasury securities, currently less than 2000 one year.
The accompanying charts, which plot the domesti~
1600 interest rate spread and the average base lending 1200 rate, and the domestic average gap positions, show the relationship between interest rates and the gap 800 positions taken at the Corporation's Boston 400 headquarters in anticipation of changes in rates for the last two years.
At the end of 1983, the cumulative ninety day gap
-400 was in a small positive position, thus allowing quick movement in either direction depending on market indications. In the first quarter of 1984, interest Dec. 82 Dec. 83 Dcc. 84 rates began to rise and, accordingly, the positive gap 0 30Day position was increased. This move was accomplished 0 90Day by liquidating portions of the fixed-rate U.S.
~ 1 Year Government securities portfolio. The average interest rate spread narrowed as the cost of funds Note: Inlerest sensitivity gap analysis has limitations and should therefore be used loith great caution. Gap analysis is only onc of several rose while the average base lending rate was factors considered when assessing thc effec of interest rate changes on relatively flat.
net interest rcvcnue. SyeciPcally, changes in interest rates do not affect During the second and third quarters, the average all categories of assets and liabilities equally or simultaneously. gap was moved into a more positive position as Furthermore, lhe gay yosilion at any one specr JI c time can be quickly and interest rates continued to increase. Spreads significantly changed by management as conditions dictate. Also, lhe replacement of maturing assets and liabilities can have opyosile affects on declined only slightly as increases in the base rate net interest rcvcnue and gap yosilion; for example, while thc present kept pace with the higher cost of funds.
trend of interest rates may bc dozonurard, thc current level may still be In the early part of the fourth quarter, interest high. If medium-lerm debt that was originally issued during a yeriod of rates began to decline and movement was made to lola rates is rcneloed at a higher level, nct interest rcvcnuc will be adversely affecte despite the fact that the gay position may bc ncgalive.
bring the gap into a smaller positive position. This reversal in the cumulative ninety day gap position will continue during the beginning of 1985, as as there are no indications that domestic interest Ion~
rates will begin to rise again.
38
I ble presents the interest sensitivity monitored for compliance with overall corporate gap analysis at year-end for the Corporation's objectives and policies that limit the size of operations located at its Boston headquarters and for international gap positions. At December 31, 1984, its Massachusetts banking affiliates. The gap the overseas dollar position had a negative ninety positions of the Corporation's overseas operations are day cumulative gap of about $ 170 million.
Interest Sensitivity Gap Analysis at December 31, 1984 interest Sensitivity Period(1) 2-30 31-90 91-365 Over fin millions) One Day Days Days Days One Year Total Earning Assets:
Loans and lease financing $ 5,081 $ 1,487 $ 658 $ 853 $ 1,669 $ 9,748 0 U.S. Treasury securities 6 366 68 440 Allother 127 38 8 139 775 Total earning assets 5,544 1,614 702 1,227 1,876 10,963 Interest Bearing Liabilities:
Federal funds and repurchase agreements 1,099 447 138 1,728 Certificates of deposit, commercial paper and notes payable 1 1,674 459 162 428 2,724 All other 20 2,603 283 461 814 4,181 Total interest bearing liabilities 1,120 4,724 880 667 1,242 8,633 Non-interest bearing funds 503 1,827 2330 st sensitivity gap $ 3,921 (3,110) (178) 560 (1,193) $ 0 ulative interest sensitivity gap $ 811 $ 633 $ 1,193 $ 0 (1) For the analysis, deposits have been included estimated core level of non-interest bearing funds after deducting applicable reserve requirements. has been allocated to the over one year period; the Allocations to specific interest sensitivity periods difference between the actual non-interest bearing are based primarily on contractual maturities. funds at December 31, 1984, and the core level has The most notable exception is non-interest been allocated to the one day interest sensitivity bearing funds, primarily demand deposits that period.
can be withdrawn without notice. These have been allocated on the following basis: the 39
Stockholders'quity At Y~r cad Capital Resources
$ hfiltions Strong capitalization has always been a primary 1200 objective of management and the Corporation has 1000 long been a leader among its peers in comparisons of capital ratios. During 1983, the bank regulatory agencies established a 5% minimum capitalization I I I guideline and late in 1984, they proposed new guidelines which when issued will raise the minimum primary capital ratio to 5.5% and clarify 200 the components of this ratio. Under current rules, the Corporation's primary capital ratio was 6.87% at 1979 1980 1981 1982 1983 1984 the end of 1984 and 5.85% at the end of 1983; and for the Bank it was 6.13% and 5.03% at the end of 6 Preferred Stock 1984 and 1983, respectively.
0 Retained Earnings In February 1984 the Corporation issued $ 100 S Common Stock, Surplus and Other million of floating-rate subordinated "equity commitment" notes due in 1996. These notes, because of a commitment to issue an equal amount of equity over the life of the notes, are considered 4 as primary capital for regulatory capital adequacy purposes. The Corporation expects to meet this commitment entirely through its dividend reinvestment and employee benefit plans. At December 31, the amount of notes considered as primary capital was $ 90 million, the difference bei ~
the common stock issued since February 1984.
Other transactions in 1984 that enhanced the capital adequacy ratio were the issuance of preferred stock, the sale of the Bank's headquarters building and the $ 100 million special addition to the reserve for possible credit losses. The preferred stock, which ~
accounts for 4% of total stockholders'quity, was issued in March for the acquisition of Casco and added $ 52 million to stockholders'quity. Also, the building sale together with the increase in the reserve for credit losses raised primary capital by
$ 158 million.
The Corporation's strong capital base, which is depicted in the Stockholders'quity chart, was primarily increased through the retention of earnings: In 1984 the percentage of retained earnings was 70% as compared with 71% in 1983.
Another measure of capital strength is leverage, total ~
assets to stockholders'quity. At December 31, 1984, this ratio was 18.62, an improvement from 19.40 at 40
Qy d 1983. This decrease is consistent with LeVerage rcuc-Eud Assess lo Equity management's goal of growth without relying on ever-increasing leverage. The Corporation's ability to 24 support asset growth through earnings is also reflected in the internal growth rate, or return on 20 common equity times the percentage of earnings 16 Q retained, which was 10.63% in 1984 and 10.21% in 12 1983.
Total return to common stockholders grew over the past five years at an annual compound rate of 26.58%. This return is the sum of a 10.82% growth rate in common dividends declared plus a 15.76%
Qappreciation in the market price of common stock. 1979 1980 1981 1982 1983 1984 The Corporation's dividend reinvestment and common stock purchase plan continued to contribute to the growth of its capital base. In 1984, proceeds were approximately 24% of common dividends paid, up from 18% last year. This plan not only provides Q source of capital for the Corporation but it is also a
an economical and convenient method for stockholders to increase their investment in the Corporation.
Shares reissued from treasury in 1984 added $ 4.4 million to the Corporation's capital, while in 1983 Qt ontributed $ 9 million. These shares were sed in 1982, at an average price of a ximately $ 23 while the average reissued price approximated $ 34 in 1984 and $ 37 in 1983.
Adversely affecting the capital base was the effect of exchange-rate fluctuations on the net assets of of Q certain foreign units. The cumulative effect 6.3 translation adjustments reduced capital by $
million at December 31, 1984, of which $ 2.1 million occurred in 1984. These fluctuations are often temporary, and are excluded from the income statement until realized.
e Effects of Inflation and Changing Prices The discussion of the impact of inflation and changing prices on the Corporation's performance, and the information required by Statement of Financial Accounting Standards No. 33, Financial 0 Reporting and Changing Prices, is presented on pages 80 and 81 of this report.
BANKOF BOSTON CORPORATION 100 FEDERAL STREET BOSTON MASSACHUSETTS 02110
~.
Report of Management The accompanying financial statements of Bank of Boston Corporation have been prepared by manage-ment, which is responsible for their integrity. The statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances, and necessarily include some amounts that are based on management's judgment.
Bank of Boston Corporation maintains a system of internal accounting control designed to provide reasonable assurance that assets are safeguarded against loss from unauthorized use; that transactions are executed in accordance with management's authorizations; and that the financial records are adequate and reliable for the preparation of financial statements. The concept of reasonable assurance is based on the recognition that the cost of a system of internal control must not exceed the related benefits. The system in use is supported by written policies and procedures that are communicated to the Corporation's operating units worldwide. Adherence to these policies and procedures is monitored by management and evaluated by a coordinated audit effort of the internal audit staff and independent certified public accountants.
The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with the Corporation's management, internal auditors and independent certified public accountants to review matters relating to the quality of financial reporting and internal accounting control and the nature, extent and results of the audit effort. The independent certified public accountants and internal auditors have direct access to the Audit Committee, with or without management present.
The accompanying financial statements have been examined by Coopers & Lybrand, independent certified public accountants. Their examinations include a study and evaluation of the Corporation's system of internal accounting control as required by generally accepted auditing standards. Under these standards, the purpose of such evaluations is to establish a basis for reliance on the system of internal accounting control in determining the nature, timing and extent of other auditing procedures required to support their opinion on the financial statements.
WILLIAML. BROWN Chairman of the Board IRA STBPANIAN President ALAN L. MCKINNON Executive Vice President Cotnptroller and Treasurer
tl Statements: Page rt of Independent Certified Public Accountants 43 Bank of Boston Corporation and Subsidiaries:
Consolidated Balance Sheet 44 certified public accountants Consolidated Statement of Income 45 Coopers Consolidated Statement of Changes in Stockholders'quity 8 Lybrand Consolidated Statement of Changes in Financial Position 47 Bank of Boston Corporation:
Parent Company Balance Sheet 48 Parent Company Statement of Income 49 Parent Company Statement of Changes in Stockholders'quity 46 Parent Company Statement of Changes in Financial Position 50 The Board of Directors and Stockholders Notes to Financial Statements 51 Bank of Boston Corporation:
Consolidated Statistical Information:
We have examined the consolidated and parent Average Balances and Interest Rates and Interest Differential: company balance sheets of Bank of Boston 0 Consolidated 61 Corporation as of December 31, 1984 and 1983, and United States Operations 62 the related consolidated and parent company International Operations 63 statements of income, changes in stockholders'quity Change in Net Interest Revenue Volume and and changes in financial position for each of the Rate Analysis: three years in the period ended December 31, 1984.
1984 as compared with 1983 64 1983 is compared with 1982 65 Our examinations were made in accordance with generally accepted auditing standards and, aphic Segment Information 66 accordingly, included such tests of the accounting ational Outstandings 68 records and such other auditing procedures as we Loans and Lease Financing 73 considered necessary in the circumstances.
Nonperforming Loans and Leases:
Provision lor Uncollectible Accrued Interest In our opinion, the financial statements referred to Receivable and Lease Income Receivable 74 above present fairly the consolidated and parent Renegotiated Loans 75 company financial position of Bank of Boston Reserve for Possible Credit Losses: 75 Corporation as of December 31, 1984 and 1983, and Allocation of Reserve for Possible the consolidated and parent company results of Credit Losses 76 operations and changes in consolidated and parent Analysis of Reserve for Possible company financial position for each of the three Credit Losses 77 years in the period ended December 31, 1984, in Investment Securities 78 conformity with generally accepted accounting Deposits 78 principles applied on a consistent basis.
Short-Term Borrowings 79 Summary of Selected Financial Data Adjusted for the Effects of Changing Prices 80 Trust Data 82 Boston, Massachusetts Summary of Quarterly Consolidated Financial January 21, 1985 Information and Common Stock Data i
43
BANK OF BOSTON CORPORATION Consolidated Balance Sheet December 31 (in thousands, except share amounts) 1984 3 Assets Cash and due from banks (Note 2) $ 1,793,257 $ 1,479,367 Interest bearing deposits in other banks 2,131,243 2,456,064 Federal funds sold and securities purchased under agreements to resell 495@53 115,425 Trading account securities (market value of $ 222,000 in 1984 and $ 191,800 in 1983) 221+65 190,073 Investment securities (Note 3):
U.S. Treasury 506,983 755,529 Other 459,835 442,741 Total investment securities (market value of $ 1,011,000 in 1984 and $ 1,240,000 in 1983) 966,818 1,198,270 Loans and lease financing (net of unearned income of $ 199,030 in 1984 and $ 217,960 in 1983) (Notes 4 and 5)
Reserve for possible credit losses (Note 6) 14+88,515 (242384) 11,895,923 (135,842)
~
14,346,131 11,760,081 Premises and equipment (Note 8) 318,207 325,155 Due from customers on acceptances 1,035,612 1,305,884 Accrued interest receivable (Note 5) 289,039 275,265 Other assets (Note 9) 481,594 432,798 Total Assets $ 22,078,819 $ 19,538,382 Uabilitles and Deposits:
Stockholders'quity Domestic offices:
Non-interest bearing $ 3,358,506 $ 2,488,141 Interest bearing Overseas offices:
5,853,753 3,4 ~
Non-interest bearing 368867 Interest bearing 5,677,440 6,110,357 Total deposits 15,258,266 12,380,924 Funds borrowed (Note 10) 3,415,766 3,981,314 Acceptances outstanding 1,044,937 1,307,032 Accrued and deferred income taxes (Note 11) 110,383 113,645 Accrued expenses and other liabilities (Note 8) 639,673 448,115 Notes payable (Note 12) 424350 300,000 Total Liabilities 20,893,375 18,531,030 Commitments and contingencies (Notes 19, 20 and 21)
Stockholders'quity (Notes 7, 13, 16 and 21):
Preferred stock without par value:
Authorized 10,000,000 shares Issued and outstanding:
Series A 1,045,712 shares 52,286 Common stock, par value $ 4.50:
Authorized 40,000,000 shares Issued 19,440,807 shares 87,484 87,484 Surplus 201@23 196,958 Retained earnings 854,208 739,085 Treasury stock, at cost 154,124 shares in 1984; 526,938 shares in 1983 (3+10) (11,965)
Cumulative translation adjustments (6@47) (4,210)
Total Stockholders'quity 1,185,444 1,0 Total Liabilities and Stockholders'quity $ 22,078,819 $ 19,538, 2 The accompanying notes are an integral part of these financiat statements.
44
BANK OF BOSTON CORPORATION Consolidated Statement of Income
'Years Ended December 31 1984 1983 1982 O usands, exceyt share amounts)
Interest income: Loans and lease financing, including lees (Note 5) $ 2,253,128 $ 1,757,446 $ 1,857,692 Investment securities 136+21 145,877 175,733 Trading account securities 78,985 67,364 32,494 Federal funds sold and securities purchased under agreements to resell 106,086 73,736 48,145 Deposits with banks 347,804 288,841 392,267 Total interest income 2,922,424 2,333,264 2,506,331 Interest expense: Deposits of domestic offices 450,917 284,949 369,805 Deposits of overseas offices 1,025,401 747,824 935,756 Funds borrowed 729,964 660,280 614,351 Notes payable 46,210 33,760 32,294 Total interest expense 2,252,492 1,726,813 1,952,206 Net interest revenue 669,932 606,451 554,125 Provision for credit losses (Note 6) 180,000 54,000 48,000 Net interest revenue after provision for credit losses 489,932 552,451 506,125 er operating Financial service fees 161,802 125,011 100,743 e: 71317 59,470 51,898 g Trust and agency fees Trading account profits and commissions 7,240 9,806 14,478 Investment portfolio gains (losses) (Note 11) (497) 3,891 (11,245)
Gain on sale of headquarters building (Note 8) 177,128 Other income (Note 14) 62+12 67,823 71,812 Total other operating income 479,802 266,001 227,686 Other operating Salaries 309,878 258,772 236,632 expense: 74,690 70,215 66,188 Employee benefits (Note 15)
Occupancy expense 54,038 42,930 40,307 Equipment expense 57,009 42,240 37,544 Other expense (Note 17) 226,665 181,054 168,518 Total other operating expense 722,280 595,211 549,189 Income before income taxes 247,454 223,241 184,622 Provision for income taxes (Note 11) 83,400 87,505 60,221 Net Income $ 164,054 $ 135,736 $ 124,401 Preferred dividends $ 4,350 Net income applicable to common stock $ 159,704 $ 135,736 $ 124,401 Per common share:
Net income $ 8.35 $ 7.40 $ 6.67 Dividends declared $ 2.34 $ 2.17 $ 1.97 Average common shares outstanding 19,117,167 18,349,634 18,660,785 The accomyanying notes are an integral yarl of these financial statenrents.
45
BANK OF BOSTON CORPORATION Consolidated and Parent Company Statement of Changes in Stockholders'quity Three Years Ended D Treasury Cunmlalive Preferred Common Rclained Slock, Translation (in thousands, except share amounts) Stock Stock Surplus Earnings al cosl Adjustments Total Balance, December 31, 1981 $ 79,467 $ 185,407 $ 555,658 $ 820,532 Adjustment at January 1, 1982 for benefit foreign currency translation (net oftax of$ 18) $ (340) (340)
'
Common shares issued in connection with:
Stock split 6,377,329 shares 6,377 (6,377)
Dividend reinvestment and stock purchase plan 261,009 shares
1,245 5,846 7,091 ~
Net income 1982 124,401 124,401 Dividends declared (36,675) (36,675)
Treasury stock purchased 1,200,000 shares $ (27,715) (27,715)
Translation adjustments, net of tax (3,220) (3,220)
Balance, December 31, 1982 87,089 184,876 643,384 (27,715) (3,560) 884,074 Common shares issued in connection with:
Acquisitions 501,288 shares 6,621 11,739 18,360 Dividend reinvestment and stock purchase plan 191,380 shares 395 4,402 2,422 Employee benefit plans 68,175 shares 1,059 1,589 2,648 Net income 1983 135,736 135,736 Dividends declared (40,035) (40,035)
Translation adjustments, net of tax (650) (650) ~
Balance, December 31, 1983 87,484 196,958 739,085 (11,965) (4,210) 1,007,352 Preferred shares issued in connection with acquisition 1,045,712 shares $ 52,286 52,286 Common shares issued in connection with:
Dividend reinvestment and stock purchase plan 292,829 shares 3@39 6,640 9,979 Employee benefit plans 79,985 shares 1,026 1,815 2,841 Net income Dividends declared:
1984 164,054 164,054 ~
Preferred stock (4,131) (4,131)
Common stock (44,800) (44,800)
Translation adjustments, net of tax (2,137) (2,137)
Balance, December 31, 1984 $ 52,286 $ 87,484 $ 201323 $ 854,208 $ (3810) $ (6347) $ 1,185,444 The accompanying notes are an integral pari of thcsc financial slalcmenls.
BANK OF BOSTON CORPORATION Consolidated Statement of Changes in Financial Position Years Ended December 31 0 ousands) 1984 1983 1982 Funds were Net income $ 164,054 $ 135,736 $ 124,401 provided from: Non-cash charges (credits) included in net income:
Provision for credit losses 180,000 54,000 48,000 Depreciation and amortization 40,293 32,290 24,095 Deferred income taxes (20,835) 15,808 (8,762)
Funds provided from operations 363+12 237,834 187,734 Increase in:
Deposits 2,877342 706,428 654,588 Funds borrowed 20,187 538,908 Acceptances outstanding 393,144 205,730 Accrued income taxes 17,573 7,121 Accrued expenses and other liabilities 68,700 21,263 Notes payable 124,350 500 Decrease in:
Cash and due from banks 151,444 Interest bearing deposits in other banks 324,821 637,187 Federal funds sold and securities purchased under agreements to resell 69 10,749 Investment and trading account securities 200,924 176,367 3,830 Due from customers on acceptances 270,272 Accrued interest receivable 27,226 Proceeds from sale of headquarters building, net of gain included in pretax income 185,872 e Issuance of stock:
Preferred Common 52,286 3,432 7,091 Treasury stock reissued 12,820 24,795
$ 4,498,472 $ 2,248,432 $ 1,767,195 Funds were Dividends declared:
used for. Preferred stock $ 4,131 Common stock 44,800 $ 40,035 $ 36,675 Increase in:
Cash and due from banks 313,890 350,933 Interest bearing deposits in other banks 124,372 Federal funds sold and securities purchased under agreements to resell 379,928 Loans and lease financing 2,766,050 1,224,243 1,204,601 Premises and equipment, excluding sale of headquarters building 90,452 85,974 57,720 Due from customers on acceptances 395,424 204,493 Accrued interest receivable 13,774 17,737 Other assets 55,667 141,539 87,560 Decrease in:
Funds borrowed 565,548 Acceptances outstanding 262,095 Accrued income taxes 9,634 Accrued expenses and other liabilities 2,262 Notes payable 500 Treasury stock purchased 27,715 Translation adjustments 2.137 650 3,560 i $ 4,498,472 $ 2,248,432 $ 1,767,195 Thc accompanying notes arc an integral part of these financial slalcmcnls.
47
BANK OF BOSTON CORPORATION Parent Company Balance Sheet December 31 (in thousands. exec t share amounts) 1984 Assets Cash and due from banks $ 1,009 $ 190 U.S. Treasury securities (market value of $ 187,400 in 1984 and $ 493,300 in 1983) 185,163 493,025 Loans (net of reserve for possible credit losses of $ 2,000 in 1984 and in 1983) (Note 6) 171,700 170,268 Advances to subsidiaries:
Bank subsidiaries 15,680 Nonbank subsidiaries 966,196 776,672 Investments in subsidiaries (Note 7):
Bank subsidiaries 1,110,566 875,251 Nonbank subsidiaries 191,076 163,914 Accrued interest and dividends receivable:
Subsidiaries 3,795 3,987 Other 7,130 13,318 Prepaid and refundable income taxes 7,821 6,733 Other assets 9,077 7,493 Total Assets $ 2,653,533 $ 2,526,S31 LIabilities and Funds borrowed $ 1,047,037 $ 1,198,495 Stockholders'quity Dividends payable 11,572 10,970 Accrued interest payable:
Subsidiaries 8,159 8,159 Other 11,259 10,296 Other liabilities 62 Advance from nonbank subsidiary 90,000 9 Notes payable 300,000 200, Total Liabilities 1,468,089 1,519,179 Commitments and contingencies (Notes 19 and 21)
Stockholders'quity (Notes 7, 13, 16 and 21):
Preferred stock without par value:
Authorized 10,000,000 shares Issued and outstanding:
Series A 1,045,712 shares 52,286 Common stock, par value $ 4.50:
Authorized 40,000,000 shares Issued 19,440,807 shares 87,484 87,484 Surplus 201823 196,958 Retained earnings 854,208 739,085 Treasury stock, at cost 154,124 shares in 1984; 526,938 shares in 1983 (3,510) (11,965)
Cumulative translation adjustments (6,347) (4,210)
Total Stockholders'quity 1,185,444 1,007,352 Total Liabilities and Stockholders'quity $ 2,653,533 $ 2,526,531 The accompanying notes are an integral part o/ these Pnanciat statements.
48
BANK OF BOSTON CORPORATION Parent Company Statement of Income Years Ended December 31 (in usands) 1984 1983 1982 Operating income: Dividends:
Bank subsidiaries $ 12,812 $ 38,856 $ 34,584 Nonbank subsidiaries 4,668 4,650 6,500 Interest income:
U.S. Treasury securities 27,289 5,228 1,501 Loans 22,846 18,510 40,469
. Advances to subsidiaries 90,079 67,065 93,818 Investment portfolio losses (1,141) (78)
Total operating income 156+53 134,231 176,872 Operating expense: Interest expense:
Funds borrowed 104,622 60,005 84,061 Advance from subsidiary 13,954 13,916 8,311 Notes payable 29,349 19,184 23,579 Reversal of reserve for possible credit losses (Note 6) (1,000) (3,130)
Other expense 1,096 378 209 Total operating expense 149,021 92,483 113,030
'O Income before income taxes and equity in undistributed net income of subsidiaries Provision (benefit) for income taxes 7,532 (4,478) 41,748 (624) 63,842 11,590 Income before equity in undistributed net income of subsidiaries 12,010 42,372 52,252 Equity in undistributed net income of subsidiaries 152,044 93,364 72,149 Net Income $ 164,054 $ 135,736 $ 124,401 Thc accompanying notes are an integral part of these financial statements.
BANK OF BOSTON CORPORATION Parent Company Statement of Changes in Financial Position Years Ended Deccntbcr 31 (in thousands) 1984 1983 Funds were Net income $ 164,054 $ 135,736 $ 124,401 provided from: Less equity in undistributed net income of subsidiaries 152,044 93,364 72,149 Funds provided from operations 12,010 42,372 52,252 Increase in:
Funds borrowed 598,627 Dividends payable 602 1349 467 Accrued interest payable 963 927 3,325 Advance from nonbank subsidiary 90,000 Notes payable 100,000 Decrease in:
Cash and due from banks 2,163 Investment securities 307,862 22,258 Loans 155,622 Accrued interest and dividends receivable 6+80 1,727 Other assets 401 Issuance of stock:
Preferred 52,286 Common 3,432 7,091 Treasury stock reissued 12,820 24,795 Reduction of investment in subsidiaries 2.137 650 3,560
$ 495,060 $ 674,315 $3 ~
Funds were Dividends declared:
used for: Preferred stock $ 4,131 Common stock 44,800 $ 40,035 $ 36,675 Increase in:
Cash and due from banks 819 1,640 ~
Investment securities 478,294 Loans 1,432 15,238 Advances to subsidiaries 173,844 86,575 49,534 Accrued interest and dividends receivable 1,396 Prepaid and refundable income taxes 1,088 6,733 Other assets 1,584 3,125 Additional investment in subsidiaries 112,570 39,905 4,600 Decrease in:
Funds borrowed 151,458 96,554 Accrued and deferred income taxes 2,214 12,523 Other liabilities 1,197 150 3,902 Notes payable 100,000 Treasury stock purchased 27,715 Translation adjustments 2/137 650 3,560
$ 495,060 $ 674,315 $ 336,703 The accompanying notes are an inlcgral pari of lhesc financial statements.
50
BANK OF BOSTON CORPORATION Notes to Financial Statements unting Policies translation adjustment and any related hedge gains and losses are recorded, net of tax, as a separate The financial reporting and accounting policies of component of stockholders'quity.
Bank of Boston Corporation (the "Corporation" )
conform to generally accepted accounting principles. For those foreign units operating in a highly The following is a summary of the significant inflationary economy, the functional currency is accounting policies. considered to be the U.S. dollar. Their financial statements are translated into U.S. dollars using year-Basis of Presentation. The consolidated financial end exchange rates for monetary assets and statements include the accounts of the Corporation liabilities, exchange rates in effect on the date of and its subsidiaries. All material intercompany acquisition for property and equipment and certain transactions have been eliminated. The First investments, and average exchange rates for income National Bank of Boston (the "Bank") is the and expenses. The resulting translation adjustments principal subsidiary and currently represents and related hedge gains and losses for these units
+ approximately 80% of consolidated assets and 75% of are recorded in the income statement as a consolidated net income. component of foreign exchange gains and losses.
Investments in 20% to 50%-owned companies The Corporation hedges a significant portion of its
("affiiliates") are recorded using the equity method of exposure to translation gains and losses in overseas accounting. The Corporation's equity interest in branches and foreign subsidiaries through the e their earnings, which in the aggregate is not purchase of forward exchange contracts and through significant, is included in other income. In the investments in fixed assets and certain securities.
parent company financial statements, investments in subsidiaries are also recorded using the equity The Corporation values its foreign exchange method of accounting. positions monthly. Such valuation includes pricing all spot and forward positions at market rates on the T excess of cost over the assigned value of net date of valuation. Net foreign exchange gains or acquired is included in other assets losses are included in other income as presented in being amortized on a straight-line basis Note 14.
over periods ranging from eight to forty years.
Securities. Investment securities are stated at cost The Corporation recognizes income and expenses adjusted for amortization of premiums and accretion using the accrual method of accounting, except for of discounts, with the exception of marketable equity certain fees and other minor sources of income securities which are valued at the lower of aggregate which are recorded as received. These exceptions do cost or market value. Gains or losses on sales of not have a material effect on results of operations. investment securities are generally computed on a International Operations. On January 1, 1982, the specific identified cost basis.
Corporation began accounting for the translation of Trading account securities are valued at the lower of financial statements of its foreign operations in cost or market value. Unrealized appreciation on accordance with Statement of Financial Accounting securities which have been written down is not Standards No. 52. This statement requires a recognized. Gains or losses on the sale of trading determination of the functional currency of each account securities and adjustments to the lower of foreign unit (generally the currency of the primary cost or market value are included in other operating economic environment in which the unit operates). income.
For those foreign units in which the functional currency is not the U.S. dollar, the assets and liabilities are translated into U.S. dollars at year-end exchange rates while income and expenses are translated using average rates. The resulting
BANK OF BOSTON CORPORATION Notes to Financial Statements, continued Loans and Lease Financing. Loan principal The provision for credit losses is based upon outstanding is stated net of unearned income. management's estimation of the amount necessar o Mortgage loans held for sale are carried at the lower maintain the reserve at an adequate level, consider-of aggregate cost or market value. ing net losses charged to the reserve, current economic conditions, sovereign and transfer risks, The Corporation accrues interest income on loans changes in the size and character of the credit risks and leases at contractual interest rates. However, the and other pertinent factors warranting current Corporation maintains a reserve for uncollectible recognition.
accrued interest receivable on certain loans as well as a reserve for uncollectible lease income on certain Premises and Equipment. Premises and equipment lease payments receivable. The Corporation provides are stated at cost less accumulated depreciation and fully for loan interest and lease income receivable amortization. Depreciation is computed on the when any portion of the principal or interest is straight-line method over the estimated useful lives ninety days past due. In some cases, where concern of the assets. Leasehold improvements are amortized 4 exists as to the ultimate collection of principal or over the lesser of the estimated life of the improve-interest, a provision is made with respect to the ment or the term of the lease.
interest accrued or lease income even though Income Taxes. The Corporation accounts for certain payments are less than ninety days past due. These items of income and expense in different periods for provisions are deducted from interest income, while financial reporting than for income tax reporting the reserve is deducted from the related receivable purposes, including the accrual for financial report-balance. Except for loans which have been placed on nonaccrual as a result of foreign exchange ing purposes of income taxes on undistributed earnings of foreign subsidiaries and equity invest-availability problems, interest payments received on ments. The tax effects of these timing differ-nonaccrual loans and leases are not recognized in ences are recognized currently in the provision for income before the credit becomes current as to both deferred income taxes.
principal and interest. Interest on loans which are on nonaccrual as a result of foreign exchange For financial reporting purposes, the investmen availability problems is recognized in income as cash credit on lease financing is recognized as lease is received. income over the investment life of the related asset; for premises and equipment, the credit is applied as Reserve for Possible Credit Losses and Provision a reduction of current tax expense in the year the for Credit Losses. The reserve for possible credit losses is available for future charge-offs of extensions property is placed in service. 0 of credit. The reserve is increased by the provision Pension Plan. The Corporation has defined benefit for credit losses and recoveries on items previously pension plans covering the majority of its domestic charged off. The reserve is decreased as loans and employees. Under the predominant pension plan, lease financing receivables are charged off. The annual pension expense is determined using the charge-off, in whole or in part, occurs once a Aggregate Cost Method which spreads the entire probability of loss has been established, with unfunded cost of future pension benefits over the ~
consideration given to such factors as the customer' projected future service lives of employees. Accrued financial condition, underlying collateral and pension costs are funded on a current basis.
guarantees.
Per Share Calculations. Net income per common Securities and real estate acquired in connection with share is computed by dividing net income, reduced troubled debt restructurings are recorded at the by preferred stock dividends, by the weighted lower of the book value of the loan or the fair value average number of common shares outstanding for of the asset received in the exchange. The excess, if each period presented. The dilutive effect of stock any, of the loan value over the fair value of the options granted is insignificant.
asset received is charged to the reserve for possible credit losses. Subsequent declines in the value of such assets are charged directly against income.
52
BANK OF BOSTON CORPORATION Notes to Financial Statements, continued serve Requirements 4. Loans and Lease Financing 0
At December 31, 1984 and 1983, cash and due from The following are the details of loan and lease banks included $ 363,721,000 and $ 367,931,000, financing balances:
respectively, to satisfy the reserve requirements of December 31 the Federal Reserve and various foreign central (in thousands) 1984 1983 banks.
0 United States Operations:
- 3. Investment Securities Commercial, industrial and financial $ 7,010,521 $ 5,253,197 A summary comparison of book and market values Real estate construction 955,782 810,444 of investment securities is as follows: Real estate other 1+29,337 778,114 Dcccmbcr 31, 1984 Loans to individuals 921,377 620,180 Book Market Lease financing 264,244 212,962 (in thousands) Value Vahcc Unearned income (98,843) (98,236)
U.S. Treasury $ 506,983 $ 522,000 States and political 10882,418 7,576,661 subdivisions 22,792 22,000 Other bonds, notes and International Operations:
debentures 321,092 315,000 Commercial and industrial 2+74,665 2,446,677 Marketable equity securities 16,206 50,000 Banks and other financial Other equity securities 99,745 102,000 institutions 558,445 643,288 Governments and official
$ 966,818 $ 1,011,000 institutions 843,057 776,150 Lease financing 286,895 313,432 December 31, 1983 Loins to affiliates 11,540 33,882 Book Market All other 231,682 225,557 (in thousands) Value Value Unearned income (100,187) (119,724)
U.S. Treasury $ 755,529 $ 755,000 States and political 4,206,097 4,319,262 subdivisions 12,827 12,000 Other bonds, notes and $ 14,588,515 $ 11,895,923 debentures 338,509 337,000 Marketable equity securities 14,129 53,000 Lease financing is net of long-term debt of Other equity securities 77,276 83,000
$ 6,850,000 in 1984 and $ 8,044,000 in 1983 for United States Operations and $ 41,552,000 in 1984 and
$ 1,198,270 $ 1,240,000
$ 44,548,000 in 1983 for International Operations, all of which is nonrecourse and is secured by liens on Other equity securities consist of equity securities the equipment under lease and assignment of the which are not traded on established exchanges and related lease payments receivable.
include investments in non-voting stock of other financial institutions, Federal Reserve Bank stock, The Securities and Exchange Commission requires certain investments of venture capital subsidiaries disclosure of loans which exceed $ 60,000 to executive and securities acquired in debt restructurings. The officers and directors of the Corporation or to their market value for these securities is based upon associates. At December 31, 1984 and 1983, these management's estimate with consideration given to loans totalled $ 32,617,000 and $ 23,744,000, the underlying value of the issuer's net assets. respectively. During 1984, total principal additions were $ 77,360,000 and total principal payments were
$ 68,487,000. Such loans were made on substantially the same terms as those prevailing for comparable transactions with similar risk.
BANK OF BOSTON CORPORATION Notes to Financial Statements, continued S. Reserve for Uncollectible Accrued Interest and The year-end loan principal and lease financing Lease Income Receivable balances for which interest and lease income was ~
An analysis of the changes in the reserve for fully reserved are as follows:
uncollectible accrued interest and lease income December 31 receivable is as follows: (in thousands) 1984 1983 1982 United States Inlernational United States (in thousands) Oyerations Oyerations Consolidated Operations $ 244,048 $ 185,495 $ 177,240 ~
Balance, International January 1, 1982 $ 30,871 $ 15,720 $ 46,591 Operations 223,837 140,279 106,230 Provision charged to interest income 23,776 14,160 37,936 Total $ 467,885 $ 325,774 $ 283,470 Interest and lease income receivable charged off (10,064) (5,736) (15,800)
A discussion of certain international nonaccrual balances is included under the caption International 0
Adjustment of Outstandings on pages 68 through 72.
foreign currency balances (1) 6. Reserve for Possible Credit Losses Balance, An analysis of changes in the reserve is as follows:
December 31, 1982 44,583 19,588 64,171 United Slates International Provision charged to (in thousands) Oyerations Oyerations Consolidated interest income 5,437 14,890 20,327 Balance, Interest and lease January 1, 1982 $ 76,170 $ 40,970 $ 117,140 income receivable charged off (4,300) (6,902) (11,202)
Provision 11,100 36,900 48,000 Adjustment of foreign currency Credit losses (31,584) (36,733) (6 balances (1) (2,604) (2,604) Recoveries 20 814 Net credit losses (10,770) (29,998) (40,768)
Balance, December 31, 1983 45,720 24,972 70,692 Balance, Provision charged to December 31, 1982 76,500 47,872 124,372 interest income 24@52 22,548 46,900 Reserves of acquired Interest and lease companies 1,641 1,641 income receivable Provision 22,700 31,300 54,000 charged off (13@96) (5,605) (19,001)
Adjustment of Credit losses (34,267) (27,052) (61,319) foreign currency Recoveries 11,790 5,358 17,148 balances (1) (3,135) (3,135)
Net credit losses (22,477) (21,694) (44,171) ~
Balance, December 31, 1984 $ 56,676 $ 38,780 $ 95,456 Balance, December 31, 1983 78,364 57,478 135,842 Reserve of acquired (I) The adjustments of foreign currency balances are company 6,519 6,519 related to foreign exchange rate fluctuations and are Provision 115,300 64,700 180,000 equal to and offset by the effects of exchange rate fluctuations on the corresponding accrued interest Credit losses (62,034) (43,075) (105,109) and lease income receivable balance. Recoveries 16,754 8@78 25,132 Net credit losses (45,280) (34,697) (79,977)
Balance, December 31, 1984 $ 154,903 $ 87,481 $ 242+84 ~
As a result of the Corporation's concern, shared segments of the banking industry about w'rowing 54
BANK OF BOSTON CORPORATION Notes to Financial Statements, continued 0 I al worldwide economic conditions, the 1984 ision for credit losses includes a $ 100,000,000 form of a mortgage note maturing in 1985. The Bank has leased back space which it presently special provision which was recorded in the fourth occupies for initial terms ranging from 2'o 10 quarter. This amount was allocated between United years with options to renew at market rental rates States and International Operations based on the for up to an additional 25 years. The sale resulted relative size of their respective loan and lease in a pre-tax gain of $ 295,500,000 of which financing portfolios. $ 118,400,000 has been deferred and will be 0 recognized in proportion to the lease payments, over The parent company's reserve for possible credit the initial terms of the leases, as a reduction of losses was reduced by $ 3,130,000 in 1982, because occupancy costs.
recoveries on loans previously charged off caused the reserve balance to be in excess of the amount Premises and equipment are stated at cost less deemed necessary. In 1983, after consideration of accumulated depreciation and amortization of 0 the size and risk characteristics of the loan portfolio, $ 144,385,000 at December 31, 1984 and $ 115,771,000 an additional $ 1,000,000 adjustment was made to at December 31, 1983. Depreciation and amortization reduce the reserve. expense for premises and equipment was $ 34,243,000 in 1984, $ 25,415,000 in 1983 and $ 20,186,000 in 1982.
- 7. Dividend and Loan Restrictions
- 9. Other Assets The approval of bank regulatory authorities is 0 required if dividends declared by the bank Other assets consist of:
December 31 subsidiaries during the year exceed certain prescribed limits. In this connection, the Corporation's bank (in lhousands) 1984 1993 subsidiaries can declare dividends in 1985, without Accounts receivable $ 108+60 $ 121,692 approval of the regulatory authorities, of Excess of cost over assigned roximately $ 250,000,000 of the undistributed value of net assets I 'ngs at December 31, 1984 plus an additional nt equal to the net profits, as defined for 1985, up to the date of any such dividend declaration.
acquired Refundable income taxes Accounts receivable for 138,985 28,910 108,023 32,429 Furthermore, the bank subsidiaries are prohibited by securities transactions 63,893 26,049 the bank regulatory authorities from granting loans Unrealized foreign exchange and advances to the parent company which exceed revaluation profits 18,739 21,618 10% of their capital and surplus, as defined. Prepaid expenses 24@30 17,574 Equity investment in Assuming declaration of the above dividends, any affiliates 12+68 12,752 such extensions of credit would be limited to an Other real estate owned 4,906 10,449 aggregate of $ 75,500,000, and would be subject to Deferred payment letters of strict collateral requirements. credit 7,268 8,757 Therefore, under the foregoing regulations, an Allother 73,835 73,455 aggregate of $ 785,066,000 of the parent company's $ 481894 $ 432,798 equity in the net assets of the bank subsidiaries, which totalled $ 1,110,566,000, was restricted.
Excess of cost over assigned value of net assets acquired includes mortgage servicing of
- 8. Premises and Equipment
$ 96,716,000 and $ 87,368,000 at December 31, 1984 In December, 1984, the Bank sold its headquarters and December 31, 1983, respectively.
building to an investor for $ 363,000,000, of which
$ 223,000,000 was in cash and $ 140,000,000 was in the 55
BANK OF BOSTON CORPORATION Notes to Financial Statements, continued
- 10. Funds Borrowed Included in the federal and state and local curr tax expense are the tax provisions (benefits) relat Funds borrowed consist of:
to investment portfolio gains o'r losses of $ (207,000)
December 31 in 1984, $ 1,894,000 in 1983 and $ (6,505,000) in 1982.
(in thousands) 1984 1983 Deferred taxes arise from differences in the timing of Federal funds purchased $ 731,180 $ 1,492,836 recognition of income and expense for tax and Term federal funds purchased 606,455 348,250 financial reporting purposes. The sources of these ~
Securities sold under differences and the tax effect of each were:
agreements to repurchase 381,407 646,119 Years Ended December 31 Commercial paper 916,524 724,929 (in thousands) 1984 1983 1982 Demand notes issued to the U.S. Treasury 140,757 106,471 Provision for credit Allother 639,443 662,709 losses $ (36,682) $ (16,059) $ (5,979)
~
Interest on nonaccrual
$ 3,415,766 $ 3,981,314 loans (9,972) (6,168) (24,900)
Cash basis accounting All other funds borrowed includes long-term for tax purposes 4,404 (977) (1,653) borrowings of $ 143,020,000 at December 31, 1984 and Foreign operations 21,077 11,448 6,684
$ 139,880,000 at December 31, 1983. Incremental taxes on unremitted earnings of
- 11. Income Taxes foreign subsidiaries 4,170 9,615 5,128 The components of the provision for income taxes Depreciation and are as follows: amortization (5,850) 1,253 (83)
Years Ended December 31 Amortization of mortgage (in thousands) 1984 1983 1982 servicing rights 3,248 1,769 Current: Leasing operations 15,839 12,567 Federal $ 42821 $ 1,538 $ 10,774 Sale of headquarters building (2,907)
Foreign:
Mortgages held for sale (8,443)
Based on income 23877 36,503 19,899 Withheld on Other, net (5,719) 2,360 828 ~
interest and dividends 11.237 15,884 18,864 $ (20,835) $ 15,808 $ (8,762)
State and local 31,810 21,142 20,096 Deferred income taxes included in consolidated 108,945 75,067 69,633 accrued and deferred income taxes amounted to
$ 63,789,000 at December 31, 1984 and $ 84,624,000 at Deferred: December 31, 1983.
Federal (13,724) ~ 13,865 (6,597)
Foreign 87 1,460 1,462 State and local (7,198) 483 (3,627)
(20,835) 15,808 (8,762)
Income taxes applicable to translation adjustments recorded directly into stockholders'quity (4,710) (3,370) (650)
$ 83,400 $ 87,505 $ 60,221 56
BANK OF BOSTON CORPORATION Notes to Financial Statements, continued 0 llowing tabulation reconciles the federal 12. Notes Payable O s ory tax rate to the consolidated effective tax Notes payable consist of:
rate:
Deccmbcr 31 Years Ended Dcccmber 31 fin thousands) 1984 1983 1984 1983 1982 8.3% notes due July 15, 1985 Federal statutory tax (issued March, 1978) $ 100,000 $ 100,000 rate 46.0% 46.0% 46.0%
10.65% notes due August 15, Tax-exempt income (7.3) (8.8) (15.7) 1987 (issued July, 1980) 100,000 100,000 Investment tax credit (.9) (1.1) (1.1) 14.25% notes due June 1, 1989 State and local income (issued May, 1982) 100,000 100,000 taxes, net of federal tax benefit 5.1 5.0 4.7 Floating rate subordinated equity commitment notes,
~I Income subject to tax at 9.56% at December 31, 1984, capital gains rate, due February, 1996 (issued net of minimum tax (8.5) (.8) (1.5) February, 1984) 100,000 Other, net (.7) (1.1) .2 Other notes with an average interest rate of 11.03% due Effective tax rate 33.7% 39.2% 32.6% 1986 through 1992 24+50 e The effective tax rate for the parent company is $ 424+50 $ 300,000 substantially less than the federal statutory rate because dividends from subsidiaries are non-taxable. The notes payable are unsecured obligations of the Domestic pre-tax income was $ 218,556,000 in 1984, Corporation or of its subsidiaries. The indentures under which certain of these notes were issued
$ 129,585,000 in 1983 and $ 113,459,000 in 1982 and prohibit the Corporation from making any payment
~ I n pre-tax income was $ 28,898,000 in 1984, 6,000 in 1983 and $ 71,163,000 in 1982. For or other distribution in the stock of the Bank unless the Bank unconditionally guarantees payment of t purpose, foreign income is defined as income generated from operations that are located outside principal and interest on the notes.
the United States.
- 13. Preferred Stock On March 30, 1984, the Corporation issued 1,045,712 shares of the Corporation's Adjustable Rate Cumulative Preferred Stock, Series A, in connection with the acquisition of Casco-Northern Corporation.
The dividend rate is adjusted quarterly according to a formula based upon the highest of three interest rate benchmarks. Such dividend rates shall not be less than 6% per annum nor greater than 13% per annum. At December 31, 1984, the dividend rate was 9.6%. Dividends declared in 1984 amounted to
$ 3.95 per share. The preferred stock, which has no preemptive or general voting rights, has a liquidation preference of $ 50 per share, plus accrued and unpaid dividends, and may be redeemed at the option of the Corporation at $ 51.50 per share on or after March 30, 1989 through March 29, 1994, and at
$ 50 per share thereafter.
57
BANK OF BOSTON CORPORATION Notes to Financial Statements, continued
- 14. Other Income The assumed rate of return used in determini actuarial present value of accumulated plan beni. s The components of other income are: was 7% for 1984 and 1983.
Years Ended December 31 1983 1982 Under the Corporation's thrift incentive plan and fin thousands) 1984 other domestic, defined contribution plans, the Foreign exchange: amounts charged to operating expense were Trading profits $ 17,427 $ 15,172 $ 14,039 $ 13,189,000 in 1984, $ 15,186,000 in 1983 and Net translation/ $ 13,813,000 in 1982.
hedge results from In addition, the Corporation provides a limited highly inflationary economies (3,505) (9,788) (2,860) amount of health and life insurance benefits for Credit card fee retired employees. The cost of these benefits for income 19@81 13,379 12,373 domestic employees, which are expensed as paid, Other fees and was $ 267,000 in 1984.
commissions 19,545 14,398 11,864 Loss on mortgages sold 16. Stock Options or held for sale (16,405) (4,930) (429) A total of 562,960 shares of common stock is Gains on sales of reserved for issuance to key employees under the securities acquired in Corporation's 1982 Stock Option Plan (the "Plan" ).
troubled debt restructurings 6,268 3,744 Options may not be issued at less than fair market ~
Gains on sales of value at date of grant. Generally, 25% of the venture capital options granted become exercisable at the date of securities 123 5,979 6,330 grant, with an additional 25% becoming exercisable Equity in undistributed each anniversary thereafter. All options expire not earnings of affiliates 2,219 4,389 3,397 later than ten years from the date of grant. The Ailother 24,027 22,956 23,354 Plan also provides for the granting of units en the holder to receive a cash payment at the en
$ 62,812 $ 67,823 $ 71,812 two-year period based on the performance of in relation to other leading financial the'orporation institutions. Cash units granted are not significant.
- 15. Employee Benefits Options outstanding at December 31, 1984 are at Pension expense amounted to $ 13,991,000 in 1984, prices ranging from $ 24.75 to $ 41.25 per share. No ~
$ 13,765,000 in 1983 and $ 16,798,000 in 1982. A options or units may be granted under the Plan after comparison of the present value of the accumulated December, 1991.
plan benefits and plan net assets, computed as of The following is a summary of the changes in September 30 of each year for the predominant plan options outstanding:
is as follows:
fin thousands) 1984 1983 Years Ended December 31 ~ ',
1984 1983 1982 Present value of accumulated plan benefits: Options outstanding, January 1 88,815 98,057 Vested $ 123,534 $ 105,920 Granted ($ 24.75 to Nonvested 9,463 8,197 $ 41.25 per share) 174,076 98,057 Exercised ($ 24.75 per e Total $ 132,997 $ 114,117 share) (4,040)
Cancelled (7,635) (5,202)
Net assets available for plan benefits $ 225,214 $ 195,030 Options outstanding, December 31 255,256 88,815 98,057 Options exercisable, December 31 112,463 44,982 24,510 Shares available for future options 307,704 474,145 4 58
BANK OF BOSTON CORPORATION Notes to Financial Statements, continued her Expense against or involving the Corporation and its subsidiaries, considers that the aggregate liability or The components of other expense are:
loss, if any, resulting from the final outcome of Years Ended Dcccmber 31 these proceedings will not be material.
(in thousands) 1984 1983 1982 Professional, other 20. Lease Commitments services and a regulatory Rental expense for leases of real estate and examination fees $ 46,217 $ 38,009 $ 36,032 equipment is summarized below:
Travel, customer Years Ended December 31 contact and (in thousands) 1984 1983 1982 advertising 40,740 35,575 29,671 Communications 34,950 28,594 25,558 Rental expense $ 34,084 $ 32,597 $ 27+72 N Forms and supplies 19,101 16,246 14,025 Less sublease rental Non-income taxes 13,047 11,253 12,020 income 3,160 2,874 2,168 Other staff costs 9,512 7,496 7,068 Net rental expense $ 30,924 $ 29,723 $ 25,204 FDIC insurance 4,603 4,364 4,099 Federal Reserve service At December 31, 1984, the Corporation was obligated fees 4,581 3,456 3,112 under noncancelable leases for real estate and Property and casualty equipment, including the leases entered into in 1984 insurance 1,960 1,557 1,926 for the Corporation's headquarters building as Allother 51,954 34,504 35,007 described in Note 8. The minimum rentals under these leases, exclusive of executory costs and net of
$ 226,665 $ 181,054 $ 168,518 amortization of deferred gain on sale of headquarters building and sublease rental income, for the years I
1985 through 1989 are $ 32,250,000, $ 28,158,000, edged Assets g $ 23,838,000, $ 19,678,000 and $ 18,114,000 respectively, A ecember 31, 1984, investment securities and and $ 71,362,000 for 1990 and later.
other assets of $ 922,985,000 were used to collateralize repurchase agreements, public deposits and other Capital leases, the minimum rentals of which are items. included in the preceding amounts, are not significant.
- 19. Commitments and Contingencies
- 21. Acquisitions In the normal course of business, there are outstanding a number of commitments to extend On March 30, 1984, the Corporation purchased all of credit, letters of credit, guarantees and letters of the common stock of Casco-Northern Corporation indemnity, as well as obligations related to bankers ("Casco") in exchange for 1,045,712 shares of the acceptances participated to other financial institutions Corporation's Adjustable Rate Cumulative Preferred and agreements to purchase or sell securities, foreign Stock, Series A, which had a value of $ 52,286,000 at exchange or interest. In the opinion of manage- the time of the acquisition. Casco, with total assets ment, these agreements do not represent unusual of $ 857.3 million at December 31, 1984, is engaged risks for the Corporation and losses, if any, resulting in retail and commercial banking in Maine.
from them will not be material. At December 31, Pro forma results of operations, including Casco, for 1984, commitments under outstanding standby letters the entire year have not been shown since the of credit and similar arrangements, net of results would not be significantly different in participations to other financial institutions, were relation to the Corporation's consolidated assets or
$ 1,410,000,000. net income.
The Corporation and its subsidiaries are defendants in a number of legal proceedings arising in the normal course of business. Management, after wing all actions and proceedings pending 59
BANK OF BOSTON CORPORATION Notes to Financial Statements, continued In November, 1983, the Corporation entered into an The acquisitions of Colonial and RIHT describ acquisition agreement with Colonial Bancorp, Inc. above are proposed to be consummated under th
("Colonial" ). Colonial, with assets of approximately interstate banking statutes of Connecticut and Rhode
$ 1.5 billion, is engaged in retail and commercial Island, respectively, each of which requires banking in Connecticut. This proposed merger has reciprocity with the Massachusetts Interstate Banking been approved by Colonial's stockholders, the Statute. The validity of the Massachusetts,
~ Federal Reserve Board and the regulatory authorities Connecticut and Rhode Island statutes has been of both Massachusetts and Connecticut. Under the challenged on constitutional grounds both before the terms of the agreement, the Corporation will issue Federal Reserve Board and in court. On August 1, shares of a second series of preferred stock which 1984, the United States Court of Appeals for the will be, at the discretion of the Corporation, either Second Circuit issued a decision (the "Northeast adjustable rate cumulative preferred stock or Decision" ) affirming several Federal Reserve Board convertible cumulative preferred stock. The value of decisions approving New England interstate bank such shares, had the transaction been consummated acquisitions, including the Corporation's proposed on December 31, 1984, would have been acquisition of Colonial, and holding that the approximately $ 74 million. Under the terms of the Massachusetts and Connecticut interstate banking agreement, since the acquisition was not statutes were constitutional. On January 7, 1985, the consummated by January 1, 1985, the purchase price United States Supreme Court agreed to review the will be increased to reflect certain increases in Northeast Decision, and the Corporation's proposed Colonial's net worth. In addition, the agreement acquisitions of Colonial and RIHT are stayed will terminate on June 30, 1986 unless extended by pending that review.
mutual consent.
In addition, stockholders of RIHT have brought two In February, 1984, the Corporation entered into an suits, to which the Corporation is not a party, which acquisition agreement with RIHT Financial seek, among other relief, to enjoin RIHT and its Corporation ("RIHT"). RIHT, with assets of directors from consummating the proposed ~,
approximately $ 2.3 billion, is a provider of retail, acquisition by the Corporation at the price pro commercial banking and trust services and is based for by the agreement. One of the suits has been in Rhode Island. This proposed transaction, the dismissed, and that dismissal has been appealed to consideration for which, had it been consummated the United States Court of Appeals for the First on December 31, 1984, would have been valued at Circuit.
approximately $ 120 million, has been approved by RIHT's stockholders, the Federal Reserve Board and 22. Segment Information both Massachusetts and Rhode Island regulatory authorities. Under the terms of the agreement, the The Corporation operates in the financial services consideration payable to RIHT shareholders will industry segment. Services are provided through a consist of a combination of cash and shares of a network of offices located both in the United States third series of preferred stock which will be, at the and overseas and, consequently, a substantial part of ~
discretion of the Corporation, either adjustable rate the Corporation's assets are denominated in cumulative preferred stock or convertible cumulative currencies other than the U.S. dollar. In order to preferred stock. It is intended that the mix between minimize exposure to movements in various currency cash and stock will be such as may be required for exchange rates the major portion of such assets is the transaction to be treated as a tax-free financed with liabilities of the same currency and reorganization by those RIHT stockholders electing the remaining portion is substantially hedged. ~
to receive Corporation stock. The Corporation has Geographic segment information for the Corporation agreed that the purchase price will be increased to for the three years ended December 31, 1984 is reflect certain increases in RIHT's net worth. The presented on pages 66 and 67.
agreement may be terminated by either party if the merger is not consummated by December 31, 1985.
BANK OF BOSTON CORPORATION Consolidated Statistical Information I
ollowing three tables present average balances applicable state and local income taxes, net of the an interest rates and interest differential related federal tax benefit. Data for loans includes information for the Corporation consolidated and nonaccrual and renegotiated balances as well as fees separately for its United States and International earned on loans. Average rates for interest bearing Operations. Incorporated in these tables is an funds of United States Operations have been adjustment of tax exempt income to a fully taxable calculated after deducting applicable reserve equivalent basis. This adjustment is calculated requirements from average balances shown in the assuming a 46% federal income tax rate adjusted for table.
Average Balances and Interest Rates and Interest
-
Differential Consolidated Years Ended December 31 1984 1983 1982 Average Average Average Average Average Average (dollarsirr millions) Balarrce interest Rate Balance interest Rate Balance interest Rate Assets Interest bearing deposits in other banks $ 2 420 $ 350.9 14.50% $ 2,940 $ 288.8 9.82% $ 2,984 $ 392.3 13.15%
Federal funds sold and resale agreements 286 106.1 37.10 189 73.7 38.99 222 48.1 21.67 Trading account securities 413 85.4 20.68 427 75.1 17.59 272 43.4 15.96 Investment securities:
U.S. Treasury 556 59.6 10.72 762 85.9 11.27 785 93.2 11.87 States and political subdivisions 22 2.7 12.27 40 5.6 14.00 192 21.4 11.15 Other 440 80.7 18.34 365 59.7 16.36 319 73.8 23.13 oans and lease financing (1) 13,210 2,287.4 17.32 11,076 1,794.5 16.20 10,125 1,901.8 18.78 I otal earning assets-interest Income 17847 2,972.8 17.14 15,799 2,383.3 15.09 14,899 2,574.0 17.28 Cash and due from banks 1,434 1,177 1,166 Other non-earning assets 2,038 1,845 1,441 Total assets $ 20,819 $ 18,821 $ 17,506 Liabilities and Stockholders'quity Deposits:
Savings $ 2,266 188.5 8.46 $ 1,520 114.1 7.62 $ 532 27.8 5.49 Time 2,846 290.6 10.39 1,995 185.8 9.59 2,864 353.6 12.73 International Operations 5,747 997.2 17.35 6,006 732.8 12.20 5,769 924.2 16.02 Federal funds purchased and repurchase agreements 2+45 402.8 17.18 2,709 363.6 13.42 2+89 343.3 14.37 21.76 296.7 23.59 1,217 271.0 22.56
~ Other funds borrowed Notes payable 1,553 405 327.2 46.2 11.41 1,273 300 33.8 11.26 313 32.3 10.32 Total interest bearing funds-interest expense 15,162 2,252.5 14.99 13,803 1,726.8 12.60 13,084 1,9S2.2 15.07 Demand and other non-interest bearing deposits 2,945 2,480 2,271 Other liabilities 1,621 1,598 1,305 Stockholders'quity 1,091 940 846 Total liabilities and stockholders'quity $ 20,819 $ 18,821 $ 17,506 Net Interest Revenue $ 720.3 $ 656.5 $ 621.8 0 Interest Rate Spread (2)
Interest Rate Margin (3) 2.15%
4.15%
2.49%
4.16%
2.21%
4 17%%u terest on loans and lease financing includes from the average rate earned on total earning fees earned of $ 72.3 million in 1984, $ 52.2 assets.
million in 1983 and $ 48.4 million in 1982. (3) Interest rate margin is calculated by dividing net (2) Interest rate spread is calculated by subtracting interest revenue by total earning assets.
the average rate paid for interest bearing funds
BANK OF BOSTON CORPORATION Consolidated Statistical Inforrnatio, continued Average Balances and Interest Rates and Interest Differential United States Operations Years Ended Dcccmber 31 1984 1983 1982 Average Average Average Average Average Average (dottarsin millions) Balance interest Rate Balance Interest Rate Balance interest Rate Assets Interest bearing deposits in other banks $ 411 $ 44.0 10.71% $ 253 $ 24.1 9.53% $ 194 $ 26.2 13.51%
Federal funds sold and resale agreements' 217 22.8 10.51 132 12.8 9.70 190 23.9 12.58 Trading account securities 350 36.8 10.51 381 37.8 9.92 258 34.6 13.41 Investment securities:
U.S. Treasury 556 59.6 10.72 762 85.9 11.27 785 93.2 11.87 States and political subdivisions 22 2.7 12.27 40 5.6 14.00 192 21.4 11.15 Other 180 21.4 11.89 113 11.4 10.09 84 9.0 10.71 Loans and lease financing (1) 8,928 1,196.0 13.40 7,029 889.1 12.65 6,339 968.1 15.27 Total earning assets-interest income 10,664 1,383.3 12.97 8,710 1,066.7 12.25 8,042 1,176.4 14.63 Cash and due from banks 1,299 1,018 1,030 Other non-earning assets 1,006 744 452 Total assets $ 12,969 $ 10,472 $ 9,524 Liabilities and Stockholders'quity Deposits:
Savings $ 2,266 188.5 8.46 $ 1,520 114.1 7.62 $ 532 27.8 Qe 5.49 Time 2,846 290.6 10.39 1,995 185.8 9.59 2,864 353.6 12.73 Federal funds purchased and \
repurchase agreements 2,203 226.4 10.28 2,582 232.1 8.99 2,295 272.3 11.86 Other funds borrowed 1,009 102.5 10.68 845 80.4 9.69 886 109.0 12.53 ~
Notes payable 291 29.6 10.17 200 19.1 9.59 253 23.6 9.33 Intersegment funding, net 272 33.1 12.17 (93) (9.6) (10.32) (315) (38.2) (12.13)
Total interest bearing funds-interest expense 8,887 870.7 9.95 7,049 621.9 8.94 6,515 748.1 11.72 Demand and other non-interest bearing deposits 2,705 2,267 2,074 Other liabilities 612 557 351 Stockholders'quity 765 599 584 Total liabilities and stockholders'quity $ 12,969 $ 10,472 $ 9,524 Net Interest Revenue $ 512.6 $ 444.8 $ 428.3 Interest Rate Spread (2) 3.02% 3.31% 2.91%
Interest Rate Margin (3) 4.81% 5.11% 5.33%
(1) Interest on loans and lease financing includes from the average rate earned on total earning fees earned of $ 58.8 million in 1984, $ 38.9 assets.
million in 1983 and $ 38 million in 1982. (3) Interest rate margin is calculated by dividing net (2) Interest rate spread is calculated by subtracting interest revenue by total earning assets.
the average rate paid for interest bearing funds 62
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued ge Balances and Interest Rates and Interest erential International Operations Years Ended December 31 1984 1983 1982 Average Average Average Average Average Average (dollars in millions) Balance lnleresl Rale Balance lnlcresl Rale Balance lnleresl Rale Assets Interest bearing deposits in other banks $ 2,009 $ 306.9 15.28% $ 2,687 $ 264.7 9.85% $ 2,790 $ 366.1 13.12%
Resale agreements 69 83.3 120.72 57 61.0 107.02 32 24.2 75.63 Trading account securities 63 48.6 77.14 46 37.2 80.87 14 8.8 62.86 Investment securities-other 260 59.3 -
22.81 252 48.3 19.17 235 64.8 27.57 Loans and lease financing (1) 4,282 1,091.4 2S.49 4,047 905.4 22.37 3,786 933.7 24.66 Total earning assets-interest income 6,683 1,589.5 23.78 7,089 1,316.6 18.57 6,857 1,397.6 20.38 Cash and due from banks 135 159 136 Other non-earning assets 1,032 1,101 989 Total assets $ 7,850 $ 8,349 $ 7,982 Liabilities and Stockhoiders'quity Deposits (2):
Banks in foreign countries $ 2,199 208.4 9.48 $ 2,288 218.9 9.57 Other foreign savings and time 3,548 788.8 22.23 3,718 513.9 13.82 Total International Operations 5,747 997.2 17.35 6,006 732.8 12.20 $ 5,769 924.2 16.02 purchase agreements 142 176.4 124.23 127 131.5 103.54 94 71.0 75.53 Other funds borrowed 544 224.7 41.31 428 216.3 50.54 331 162.0 48.94 Notes payable 114 16.6 14.56 100 14.7 14.62 60 8.7 14.62 Intersegment funding, net (272) (33.1) (12.17) 93 9.6 10.32 315 38.2 12.13 Total interest bearing funds-interest expense 6,275 1,381.8 22.02 6,754 1,104.9 16.36 6,569 1,204.1 18.33 Non-interest bearing deposits 240 213 197 Other liabilities 1,009 1,041 954 Stockholders'quity 326 341 262 Total liabilities and stockholders'quity $ 7,850 $ 8,349 $ 7,982 Net Interest Revenue $ 207.7 $ 211.7 $ 193.5 Interest Rate Spread (3) 1.76% 2.21% 2.05%
Interest Rate Margin (4) 3.11% 2.99% 2.82%
(1) Interest on loans and lease financing includes (3) Interest rate spread is calculated by subtracting
~ fees earned of $ 13.5 million in 1984, $ 13.3 the average rate paid for interest bearing funds million in 1983 and $ 10.4 million in 1982. from the average rate earned on total earning assets.
(2) The breakdown by category for deposits of International Operations for 1982 is not readily (4) Interest rate margin is calculated by dividing net available. interest revenue by total earning assets.
~ Average Asset and Liability Ratios Years Ended December 31 1984 1983 1982 age assets of International Operations to average consolidated assets 38% 44% 46%
Average liabilities of International Operations to average consolidated liabilities 38% 45% 46%
63
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued Change in Net Interest Revenue Volume and Rate Analysis-1984 as compared with 1983 The following table presents, on a fully taxable as compared with 1983. The change due to the O.
equivalent basis, an analysis of the effect on net volume/rate variance has been allocated to volume.
interest revenue of volume and rate changes for 1984 Consolidated United States International Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due lo Change in Due to Change in Due lo Change in Nel Net Nel (in milliorrs) Volume Rate Change Volume Rate Change Volume Rate Change Earning Assets:
Interest bearing deposits in other banks $ (75.4) $ 137.5 $ 62.1 $ 16.9 $ 3.0 $ 19.9 $ (103.6) $ 145.8 $ 42.2 Federal funds sold and resale agreements 36.0 (3.7) 32.3 8.9 1.1 10.0 14.5 7.8 22.3 Trading account securities (2.9) 13.3 10.4 (3.3) 2.3 (1.0) 13.1 (1.7) 11.4 Investment securities:
U.S. Treasury (22.1) (4.2) (26.3) (22.1) (4.2) (26.3)
States and political subdivisions (22) (7) (29) (2 2) (7) (2.9)
Other 13.8 7.2 21.0 8.0 2.0 10.0 1.8 9.2 11.0 Loans and lease financing 369.5 123.4 492.9 254.4 52.5 306.9 59.9 126.1 186.0 Adjustment (1) (51.4) 51.4 (7.1) 7.1 (82.3) 82.3 Interestincome 265.3 324.2 589.5 253.5 63.1 316.6 (96.6) 369.5 272.9 Interest Bearing Funds:
Deposits:
Savings Time 61.8 89.2 12.6 15.6 74.4 104.8 61.8 89.2 12.6 15.6 74.4 104.8
~ e International Operations (44.9) 309.3 264.4 (44.9) 309.3 264.4 Federal funds purchased and repurchase agreements (62.5) 101.7 39.2 (39.0) 33.3 (5.7) 18.6 26.3 44.9 Other funds borrowed 53.5 (23.0) 30.5 13.9 8.2 22.1 47.9 (39.5) 8.4 Notes payable 1 1.5 .9 12.4 9.3 1.2 10.5 2.0 (.1) 1.9 Intersegment funding, net 21.8 20.9 42.7 (21.8) (20.9) (42.7)
Adjustment (1) 92.4. (92.4) 2.6 (2.6) (85.8) 85.8 Interest expense 201.0 324.7 525.7 159.6 89.2 248.8 (84.0) 360.9 276.9 ~
Net Interest Revenue $ 64.3 $ (.5) $ 63.8 $ 93.9 $ (26.1) $ 67.8 $ (12.6) $ 8.6 $ (4.0)
(1) Adjustment to reflect the effect on total volume component mix of earning assets and interest bearing and rate changes of the differences in the liabilities from year to year.
64
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued e in Net Interest Revenue-Volume and
'4 R Analysis 1983 as compared with 1982 The following table presents, on a fully taxable as compared with 1982. The change due to the equivalent basis, an analysis of the effect on net volume/rate variance has been allocated to volume.
interest revenue of volume and rate changes for 1983 Consolidated United States International Increase (Dccreasc) Increase (Decrease) Increase (Decrcasc)
Due to Changcin Duc lo Change in Due to Change in Nct Net Net (in millions) Volume Rate Change Volume Rate Change Volume Rate Change Earning Assets:
Interest bearing deposits in other banks $ (4.3) $ (99.2) $ (103.5) $ 5.6 $ (7.7) $ (2.1) $ (10.1) $ (91.3) $ (101.4)
~ Federal funds sold and resale agreements (12.9) 38.5 25.6 (5.6) (5.6) (11.2) 26.8 10.0 36.8 Trading account securities 27.3 4.4 31.7 12.2 (8.9) 3.3 25.9 2.5 28.4 Investment securities:
U.S. Treasury (2.6) (4.7) (7.3) (2.6) (4.7) (7.3)
States and political subdivisions (21.3) 5.5 (15.8) (21.3) 5.5 (15.8)
Other 7.5 (21.6) (14.1) 2.9 (.5) 2.4 3.3 (19.8) (16.5)
Loans and lease financing 154.1 (261.4) (107.3) 87.3 (166.3) (79.0) 58.4 (86.7) (28.3)
Adjustment (1) (12.0) 12.0 3.3 (3.3) (61.2) 61.2 Interest income 135.8 (326.5) (190.7) 81.8 (191.5) (109.7) 43.1 (124.1) (81.0)
Beartng Funds:
osits:
Savings 75.6 10.7 86.3 75.6 10.7 86.3 Time (80.4) (87.4) (167.8) (80.4) (87.4) (167.8)
International Operations 28.9 (220.3) (191.4) 28.9 (220.3) (191.4)
Federal funds purchased and repurchase agreements 43.0 (22.7) 20.3 25.8 (66.0) (40.2) 34.2 26.3 60.5 Other funds borrowed 13.4 12.3 25.7 (3.9) (24.7) (28.6) 49.0 5.3 54.3 Notes payable (1.5) 3.0 1.5 (5.1) .6 (4.5) 6.0 6.0 Intersegment funding, net 22.9 5.7 28.6 (22.9) (5.7) (28.6)
Adjustment (1) 19.4 (19.4) 12.8 (12.8) (59.0) 59.0
~ Interest expense 98.4 (323.8) (225.4) 47.7 (173.9) (126.2) 36.2 (135.4) (99.2)
Net Interest Revenue $ 37.4 $ (2.7) $ 34.7 $ 34.1 $ (17.6) $ 16.5 $ 6.9 $ 11.3 $ 18.2 (1) Adjustment to reflect the effect on total volume component mix of earning assets and interest bearing and rate changes of the differences in the liabilities from year to year.
65
BANK OF BOSTON CORPORATION Consolidated Statistical information, continued Geographic Segment information The following tables present geographic segment the relative risk characteristics of assets in the information for the Corporation for each of the three various geographic regions. Finally, allocations have years ended December 31, 1984. This geographic been made among units based upon the segment information presents assets and income Corporation's management accounting system segregated into country or regional locations based whereby non-interest income and expenses are upon the domicile of the customer or borrower, but adjusted to reflect the cost of services provided by without regard to such factors as method of funding one unit to another, including corporate overhead.
(Le., local vs. non-local currency), or location of any For the purpose of evaluating the potential for cash collateral or guarantees.
certain transfer risks associated with cross-border As a result of the inter-relationships that exist within outstandings, such factors as method of funding and the Corporation's worldwide network, allocations of location of any cash collateral or guarantees should certain income and expense items are necessarily be taken into account. A discussion of cross-border ~
based on assumptions and subjective criteria. outstandings may be found under the caption Interest expense allocations, for example, are based International Outstandings on pages 68 through 72.
on an assumed average money market rate.
Additionally, corporate capital is allocated based on Olher Tolal Latin inter- United American Asia/ Other national States Consol-(in millions) Argenlina Brazil Countries Euroye Pacific Regions Oyeralions Oyerations idated For the Year Ended December 31, 1984 Net interest revenue $ 28.1 $ 42.3 $ 48.6 $ 50.9 $ 21.3 $ 14.8 $ 206.0 $ 463.9 $ 669.9 Provision for credit losses 4.0 5.4 11.8 16.3 22.0 5.2 64.7 115.3 Net interest revenue after provision for credit losses 24.1 36.9 36.8 34.6 (.7) 9.6 141.3 348.6 489.9 Other operating income 29.5 1.9 8.4 8.9 12.1 6.3 67.1 412.7 479.8 Other operating expense 44.5 20.9 21.4 35.1 18.7 7.4 148.0 574.2 722.2
~
Non-interest allocations, net-charge/(credit) 4.0 6.1 15.2 12.3 8.5 2.7 48.8 (48.8)
Income before income taxes 5.1 11.8 8.6 (3.9) (15.8) 5.8 11.6 235.9 247.5 Net income $ 2.5 $ 5.1 $ 4.1 $ (2.3) $ (7.7) $ 4.2 $ 5.9 $ 158.2 $ 164.1 Average assets:
Interest bearing deposits in other banks $ 41.0 $ 16.0 $ 178.0 $ 1,243.0 $ 369.0 $ 162.0 $ 2,009.0 $ 411.0 $ 2,420.0 Loans and lease financing 488.0 448.0 842.0 1,147.0 857.0 500.0 4,282.0 8,928.0 13,210.0 Ailother assets 232.0 187.0 203.0 431.0 406.0 100.0 1859.0 3,630.0 5,189.0 Total average assets $ 761.0 $ 651.0 $ 1,223.0 $ 2,821.0 $ 1,632.0 $ 762.0 $ 7,850.0 $ 12,969.0 $ 20,819.0 66
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued phic Segment Information 0 Other Total Latin inter- United American Asia/ Other national States Consol-(in millions) Argentina Brazil Countries Euroye Paci ic Regioirs Oyerations Oyerations idated For the Year Ended December 31, 1983 Net interest revenue $ 44.5 $ 44.9 $ 36.1 $ 50.3 $ 22.7 $ 10.4 $ 208.9 $ 397.5 $ 606.4 Provision for credit losses 2.1 3.0 15.8 3.7 5.6 1.1 31.3 22.7 54.0 Net interest revenue after provision for credit losses 42.4 41.9 20.3 46.6 17.1 9.3 177.6 374.8 552.4 Other operating income 19.8 11.2 .5 12.7 12.5 4.4 61.1 204.9 266.0 Other operating expense 37.0 19.6 15.4 32.6 15.2 6.9 126.7 468.5 595.2 Non-interest allocations, net-charge/(credit) 5.8 5.2 6.6 14.7 5.9 2.8 41.0 (41.0)
Income before income taxes 19.4 28.3 (1.2) 12.0 8.5 4.0 71.0 152.2 223.2 Net income $ 9.2 $ 13.4 $ (.5) $ 7.0 $ 4.1 $ 2.2 $ 3S.4 $ 100.3 $ 135.7
~ Average assets:
Interest bearing deposits in other banks $ 1.0 $ 6.0 $ 192.0 $ 1,781.0 $ 453.0 $ 254.0 $ 2,687.0 $ 253.0 $ 2,940.0 Loans and lease financing 503.0 351.0 811.0 1,041.0 893.0 448.0 4,047.0 7,029.0 11,076.0 Allother assets 199.0 172.0 358.0 578.0 61.0 1,615.0 3,190.0 4,805.0 '47.0
~ ii average assets $ 751.0 $ 556.0 $ 1,175.0 $ 3,180.0 $ 1,924.0 $ 763.0 $ 8,349.0 $ 10,472.0 $ 18,821.0 Other Total Latin inter- United American Asia/ Other national Stalcs Consol-(in millions) Argentina Brazil Countries Europe Paci fic Regions Oycrations Oycrations idated For the Year Ended December 31, 1982 Net interest revenue $ 49.9 $ 35.0 $ 33.5 $ 44.8 $ 19.5 $ 10.8 $ 193.5 $ 360.6 $ 554.1 Provision lor credit losses 3.2 1.0 13.8 15.4 2.5 1.0 36.9 11.1 48.0 Net interest revenue after provision lor credit losses 46.7 34.0 19.7 29.4 17.0 9.8 156.6 349.5 506.1 Other operating income 21.5 12.1 4.0 9.5 9.5 3.1 59.7 168.0 227.7 Other operating expense 42.2 24.5 15.2 30.9 11.0 4.7 128.5 420.7 549.2 Non-interest allocations, net-charge/(credit) 7.6 6.1 3.4 12.5 3.6 2.0 35.2 (35.2)
Income before income taxes 18.4 15.5 5.1 (4.5) 11.9 6.2 52.6 132.0 184.6 Net income $ 9.1 $ 7.4 $ 2.4 $ (2.3) $ 5.6 $ 3.1 $ 25.3 $ 99.1 $ 124.4 Average assets:
Interest bearing deposits in other banks $ 2.0 $ 1.0 $ 314.0 $ 1,778.0 $ 493.0 $ 202.0 $ 2,790.0 $ 194.0 $ 2,984.0 ans and lease financing 595.0 339.0 769.0 1,020.0 692.0 371.0 3,786.0 6,339.0 10,125.0 ther assets 179.0 149.0 151.0 342.0 544.0 41.0 1,406.0 2,991.0 4,397.0 Total average assets $ 776.0 $ 489.0 $ 1,234.0 $ 3,140.0 $ 1,729.0 $ 614.0 $ 7,982.0 $ 9,524.0 $ 17,506.0 67
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued International Outstandings At December 31, 1984, international outstandings represent approximately 35% of the Corporation's amounts payable in local currency but funded with U.S. dollars or other non-local currencies. Excluded
~.
consolidated total assets. Included in these from the computation of cross-border outstandings outstandings are cash and deposits in other banks, for a given country are (a) local currency resale agreements, investment and trading account outstandings funded locally and (b) U.S. dollar or loans and lease financing, amounts due 'ecurities, other non-local currency outstandings reallocated as a ~
from customers on acceptances and accrued interest result of external guarantees or cash collateral.
receivable. Total cross-border outstandings represent Cross-border outstandings in countries which approximately 25% of consolidated total assets at individually exceed .75% of consolidated total assets December 31, 1984. Cross-border outstandings are at December 31, 1984 and December 31, 1983 are defined as amounts payable to the Corporation in approximately as follows:
U.S. dollars or other non-local currencies, plus December 31, 1984 Percentage of Consolidated Total (dollars in millions) Public (1) Banks (2) Other Total hssets Commitments (3)
Country Argentina $ 110 $ 5 $ 135 $ 250 1.1% $ 80 Brazil 190 5 135 330 1.5 20 Canada 240 30 270 1.2 60 France 15 335 20 370 1.7 25 Italy 15 220 10 245 1.1 Japan 220 55 275 1.2 Mexico 95 20 115 230 1.0 0 South Korea 40 115 65 220 1.0 20 United Kingdom 15 240 250 505 2.2 105 West Germany 40 45 100 185 .8 45 December 31, 1983 Percentage of Consolidated Total (dollars in millions) Public (1) Banks (2) Other Total hssets Commitments(3)
Country Argentina $ 75 $ 215 $ 290 1.5% $ 35 Australia $ 70 115 185(4) .9 15 Brazil 120 10 175 305 1.6 35 Canada 325 55 380(4) 1.9 60 France 20 275 20 315 1.6 20 Italy 40 240 10 290 1.5 5 Japan 475 165 640(4) 3.3 15 Luxembourg 165 10 175(4) .9 10 Mexico 75 30 120 225 1.2 South Korea 60 255 55 370(4) 1.9 10 Taiwan 15 30 120 165(4) .8 40 ~
United Kingdom 10 270 250 530(4) 2.7 105 West Germany 40 85 105 230(4) 1.2 68
BANK OF BOSTON CORPORATION C onsolidated Statistical Information, continued 4 eluded within public are cross-border debt service payments are not made as originally outstandings to central governments and their scheduled. Currently, such conditions exist in a agencies, central or government development number of countries throughout the world, including banks, state and local foreign governments and three countries whose cross-border outstandings non-bank commercial enterprises, majority-owned individually exceed .75% of consolidated total assets by central governments. Excluded are banks at December 31, 1984 (Argentina, Brazil and Mexico).
owned by foreign governments that do not function as central banks or banks of issue. Argentina. A proposal, endorsed by the IMF and (2) Included within banks are cross-border Argentina's Bank Advisory Committee, to provide outstandings to (a) private banking institutions, new funds and to reschedule certain public and and (b) banks owned by a foreign government private credits has been submitted to Argentina's other than central banks or banks of issue. international lenders. In responding to this proposal, the Corporation has agreed to disburse
~ (3) Included within commitments are letters of approximately $ 50 million in financing (primarily 10-credit, the undisbursed portion of loan year-term; 3 years grace on installments of principal) commitments and guarantees. Amounts during the course of 1985 and the first quarter of presented are net of reallocations. 1986. The proposal also calls for Argentina to repay (4) December 31, 1983 amounts have been restated the remaining balance of a bridge loan provided by to reflect current judgments as to the inclusion international lenders in prior years. The Corporation
~ of certain funding arrangements as cross-border would expect to receive $ 10 million from this outstandings. repayment in 1985. In addition to the new money All of the overseas activities of the Corporation's commitment discussed above, $ 7 million in medium-subsidiaries are subject to the political conditions in, term financing disbursed by the Corporation in prior and economic and regulatory policies of, the years, at Argentina's request, will remain rnments of the countries in which the activities outstanding.
nducted, including the policies of such The proposal also provides for a rescheduling of rnments toward indebtedness to foreign lenders, approximately $ 70 million of the Corporation's cross-toward private business, and toward the United border loans and calls upon the Corporation to States. In addition, high rates of inflation and local, maintain trade lines into Argentina at September 30, regional and worldwide recessionary conditions of 1984 levels (approximately $ 120 million). The
~ varying degrees of severity affect local economies Corporation's Argentine trade financing is primarily and governments and accordingly may also affect associated with acceptances and documentary letters overseas activities. of credit.
Moreover, from time to time, conditions in a country may be such that, due to foreign exchange liquidity problems, currency restrictions or other situations
~ unrelated to normal credit risk, non-local currency 69
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued The following summarizes significant data relative to cross-border loans which will be rescheduled u the approximately $ 70 million in non-trade related this proposal.
Approximate 1984 Interest Income Pro Forma Weighted Average Pro Forma Assuming Approximate Interest Rate Assuming all Full Accrual (doitarsin millions)
Principal Amount Current Proposed Actual Loans on Full Accrual at Proposed Interest Rates
~
(1) Certain private sector loans $ 55 15.5% Libor + 1.4% $ 3.6 $ 8.4 $ 7.4 (2) Certain public sector loans $ 15 12.9% Libor + 1.4% $ 1.4 $ 2.1 $ 2.0 Repayment of private and public sector loans will obligation from private outstandings to public generally be over a ten-year period with three years outstandings. At December 31, 1984, the Corporation grace on installments of principal. had received (in payment or as collateral) all of these government obligations associated with such In late December 1984, approximately $ 1 million in cross-border outstandings. These loans are on full past due interest was received by the Corporation on ~
accrual status at December 31, 1984 since the the approximately $ 15 million in public sector loans underlying government obligation has been issued in referred to above. This interest was recognized as payment or as collateral and the interest owed is income; however substantially all of the related being paid in accordance with the terms of the principal remained on nonaccrual at December 31, program.
1984. In addition, $ 28 million of the approximately
$ 55 million in private sector loans affected by this To the extent the government obligation was is proposal were on nonaccrual at December 31, 1984. before November 4, 1983, interest due was recei in cash. On November 4, 1983 Communication Approximately $ 70 million of the Corporation's cross- A-404, affecting approximately $ 55 million of the $ 70 border outstandings to Argentina, which originated million of the Corporation's cross-border outstandings in the private sector and originally matured in 1982 referred to in the preceding paragraph, was and 1983, have been subject to a rescheduling announced. This Communication included a program initially established under Argentine provision which amended the manner in which Communication A-251. Under this program, lenders interest would be paid for government obligations may either accept dollar-denominated five-year issued from that date onward. Interest due on these government obligations as payment or extend the loans is being paid ten percent in cash and ninety original loan for five additional years, using the government obligations as collateral. The rescheduling arrangement in effect provides the guarantee of the Argentine government for loans to such private borrowers, or transfers fully the
~ i
~ '0
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued nt in the form of a 120-day, Argentine Central In connection with that portion of Brazil's interest bearing deposit. As these deposits refinancing package dealing with short-term trade mature, they are being paid out to the Corporation financing, the Corporation agreed to maintain its in cash. As of December 31, 1984, the Corporation current level of funding (approximately $ 80 million) held $ 2 million of these deposits associated with during 1984.
cross-border outstandings.
During 1984, approximately $ 40 million of interest During 1984, approximately $ 25 million of interest income was recorded on cross-border outstandings to income was recorded on cross-border outstandings to Brazil and approximately $ 45 million was received in Argentina and approximately $ 25 million was cash. Total Brazilian loans on nonaccrual at received in cash. Total Argentine loans on December 31, 1984 were $ 6 million, all of which are nonaccrual at December 31, 1984, including the attributable to credit-related problems.
cross-border outstandings discussed previously were
$ 60 million, representing $ 46 million of private and Mexico. During 1983 and 1984, the Corporation
$ 14 million of public outstandings. disbursed $ 17 million and $ 10 million respectively to Mexico in medium to long-term financing under Brazil. During 1983 and 1984, the Corporation agreements negotiated between Mexico and its disbursed $ 31 million and $ 33 million respectively to international lenders. The Corporation's aggregate Brazil in medium to long-term financing under commitment under these agreements is $ 31 million.
~ agreements negotiated between Brazil and its international lenders.
During 1984, approximately $ 10 million of interest income was recorded on public cross-border The Corporation has agreed to reschedule non-trade outstandings to Mexico and approximately $ 10 related cross-border outstandings maturing in 1983 million was received in cash. Total public cross-and 1984 amounting to approximately $ 35 million border outstandings to Mexico at December 31, 1984
$ 20 million respectively. Under these were approximately $ 95 million.
eduling plans, referred to as Project II, An agreement in principle to reschedule certain N wers with dollar debt make principal payments public loans has been reached between Mexico and in local currency to the Central Bank, which its international lenders. The rescheduling, which converts the local currency to an interest bearing affects approximately $ 70 million of the Corporation's dollar account which is payable to the Corporation public cross-border outstandings, calls for (1) a in scheduled payments extending to 1993. further rescheduling of outstandings which originally Under both the medium-term financing and Project matured between August, 1982 and December, 1984 II programs, referred to above, the interest-bearing (12 year term; no grace on installments of principal),
dollar account funds are available to the Corporation (2) a rescheduling of the 1983 portion of the under certain conditions for relending within Brazil. medium- to long-term financing previously referred At December 31, 1984, the Corporation had relent approximately $ 70 million under this aspect of the programs.
BANK OF BOSTON CORPORATION Consolidated Statisticai Information, continued to (10 year term; 4 years grace on installments of problems. The Mexican government is making, principal), and (3) a rescheduling (for the first time) foreign exchange available for the payment of ~
of the Corporation's public cross-border outstandings interest on private and public loans.
with original maturities falling between 1985 and 1990 (14 year term; 1 year grace on installments of Venezuela. Although not included in the .75% and principal). The Corporation received no principal higher outstandings, cross-border outstandings to repayments on any public cross-border outstandings Venezuela at December 31, 1984 were approximately in 1984. $ 125 million, of which approximately $ 10 million ~
was to public borrowers, $ 45 million was to banks The following summarizes the effects which this (of which approximately $ 20 million was to proposal will have on the Corporation's public cross- government owned banks) and $ 70 million was to border outstandings. private borrowers. In addition, cross-border letters Weighted Average of credit into Venezuela amounted to $ 10 million at interest Rate December 31, 1984.
Principal (dollars in millions) Amount Current Proposed The Venezuelan government has reached an (1) Further agreement with its Bank Advisory Committee on the rescheduling rescheduling of public debt. It is not expected that of loans originally Venezuela's international creditors will sign the maturing between August 1982 and agreement until the private rescheduling program, December 1984 $45 Prime + 1.7% Libor + 1.2%
referred to below, is finalized. Currently, payments (2) 1983 Medium of principal on public debt have been deferred until Term Loan $ 17'rime + 2.1% Prime + 1.1%
April 30, 1985. The Corporation's public borrowers (3) First rescheduling were substantially current with respect to the of Loans maturing between payment of interest at December 31, 1984.
1985 and 1990 $ 9 Libor + .9% Libor + 1.2%
Although not yet finalized, Venezuela has anno ~
't is expected that Mexico will prepay approximately $ 3 million to $ 4 million of this loan a rescheduling program for private sector debt.
Presently, borrowers continue to experience difficulties in obtaining foreign exchange and a as part of the proposed package during 1985. The portion of private sector loan principal and interest Corporation received the first installment of this has fallen past due.
prepayment amounting to approximately $ 1 million in January, 1985. Total Venezuelan loans on nonaccrual at December 31, 1984 were $ 46 million, most of which is Approximately $ 20 million of the Corporation's cross- attributable to delays in obtaining foreign exchange.
border outstandings represent placements with Mexican banks. These outstandings continue to be renewed under short-term arrangements at market In management's opinion, the conditions described rates of interest.
above will not ultimately have a material adverse Mexico has established a program, known as effect on the Corporation. However, in light of FICORCA, whereby principal amounts due from continuing uncertainties within countries private borrowers will generally be repaid over experiencing difficulties in meeting non-local debt terms ranging from six to eight years. Substantially service, it is likely that from time to time additional all of the Corporation's private cross-border loans will be placed on nonaccrual.
outstandings are covered by this program.
Total Mexican loans on nonaccrual at December 31, 1984 were $ 20 million, all of which are to private borrowers and are attributable to credit-related 72
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued I and Lease Financing The Corporation's lending activities are conducted of total loans which are not otherwise disclosed principally by the Bank. The loan and lease below. The following table presents details of financing portfolio is broadly diversified both in consolidated loan and lease financing balances terms of geographical and industrial categories. outstanding on the dates indicated.
There are no concentrations of loans exceeding 10%
December 31 1984 1983 1982 1981 1980 (dollars in millions) Balance Perccnl Balance Pcrcenl Balance Percenl Balance Percenl Balance Percenl United States Operations:
Commercial, industrial and financial $ 7,010.5 48.1% $ 5,253.2 44.2% $ 4,945.9 46.1% $ 4,339.8 45.4% $ 3,900.1 44.1%
Real estate-construction 955.8 6.6 810.4 6.8 585.3 5.5 435.9 4.6 373.6 4.2
Real estate other 1329.3 9.1 778.1 6.5 588.1 5.5 554.5 5.8 379.9 4.3 Loans to individuals 921.4 6.3 620.2 5.2 602.2 5.6 618.5 6.5 570.2 6.4 Lease financing 264.2 1.8 213.0 1.8 214.0 2.0 171.3 1.8 131.7 1.5 Unearned income (98.8) (.7) (98.2) (.8) (115.4) (1.0) (111.2) (1.2) (116.6) (1.3) 10,382.4 71.2 7,576.7 63.7 6,820.1 63.7 6,008.8 62.9 5,238.9 59.2 International Operations:
ommercial and dustrial 2,374.7 16.3 2,446.7 20.6 2,534.8 23.7 2,418.5 25.3 2,599.2 29.4 ks and other financial institutions 558.4 3.8 643.3 5.4 558.3 5.2 404.6 4.2 409.8 4.6 Governments and official institutions 843.1 5.8 776.1 6.5 355.2 3.3 310.7 3.3 290.5 3.3 Lease financing 286.9 1.9 313.4 2.6 307.2 2.9 295.8 3.1 223.9 2.5 Allother 243.2 1.7 259.4 2.2 262.5 2.4 228.6 2.4 156.4 1.8 Unearned income (100.2) (.7) (119.7) (1.0) (123.9) (1.2) (116.0) (1.2) (71.2) (.8) 4,206.1 28.8 4,319.2 36.3 3,894.1 36.3 3,542.2 37.1 3,608.6 40.8
$ 14 588.5 100.0% $ 11,895.9 100.0% $ 10,714.2 100.0% $ 9,551.0 100.0% $ 8,847.5 100.0%
The Corporation does not have an automatic rollover in part, upon the needs of the individual customer (renewal) policy for maturing loans. Rather, loans and the Corporation's credit review and evaluation are renewed at the maturity date only at the request of current and future economic conditions. Since of those customers who are deemed to be these factors have varied considerably and will most creditworthy by the Corporation. Additionally, the likely continue to do so, the Corporation believes it
~ Corporation reviews such requests in substantially is impracticable to estimate the amount of loans in the same manner as applications by new customers the portfolio which may be rolled over in the for extensions of credit (see also International future.
Qutstandings beginning on page 68). The maturity date and interest terms of renewed loans are based, 73
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued The following table presents the maturities and 1984, exclusive of domestic office loans secured interest sensitivity, based on original contractual one to four-family residential properties, domesti terms, of the Corporation's loans at December 31, loans to individuals and lease financing.
Within hfter One but hfter (in millions) One Year toit bin Five Years Five Years Total Commercial, industrial and financial $ 3,932.0 $ 2,333.9 $ 523.5 $ 6,789.4 Real estate construction 746.4 199.3 10.1 955.8
Real estate other 355.6 215.1 135.1 705.8 ~
Overseas offices 2,861.4 891.4 492.4 4,245.2
$ 7,895.4 $ 3,639.7 $ 1,161.1 $ 12,696.2 Loans with predetermined interest rate $ 3,184.6 $ 620.3 $ 234.4 $ 4,039.3 Loans with floating interest rate 4,710.8 3,019.4 926.7 8,656.9
$ 7,895.4 $3,639.7 $ 1,161.1 $ 12,696.2 Nonperforming Loans and Leases Provision for Uncollectible Accrued interest Receivable and was $ 46.9 million in 1984, $ 20.3 million in 1983, Lease income Receivable: $ 37.9 million in 1982, $ 27 million in 1981 and $ 18.5 million in 1980.
The Corporation's policy with respect to nonaccrual loans and leases is discussed in Note 1 of Notes The following is a summary of outstanding loans to Financial Statements under the caption Loans and leases by type and as a percentage of the related and Lease Financing. At December 31, 1984, consolidated loan category for which the related approximately 15% of nonaccrual loans and leases accrued interest and lease income receivable was were less than ninety days past due. The aggregate provision for uncollectible interest and lease income partially or fully reserved.
December 31 o
1984 19S3 1982 1981 1980 Percent Percent Percent Percent Percent of Loan of Loan of Loan of Loan of Loan (dollars in millions) Balance Category Balance Category Balance Category Balance Category Balance Category
~
United States Operations:
Commercial, industrial and financial $ 198.3 2.8% $ 125.1 2.4% $ 152.3 3.1% $ 99.2 2.3% $ 58.5 1.5%
Real estate construction 24.3 2.5 37.2 4.6 8.8 1.5 17.2 4.0 2.8 .7 Real estate-other 9.3 .7 11.7 1.5 4.8 .8 10.2 1.8 9.6 2.5 Loans to individuals 7.8 6.6 5.4 .9 19.5 3.4
'
9.0 1.0 1.3 1.1 Lease financing 3.2 1.2 3.7 1.7 4.8 2.3 1.7 1.0 244.1 2.4 185.5 2.4 177.3 2.6 133.7 2.3 90.4 1.8 International Operations:
Commercial and industrial 150.0 6.3 111.6 3.9 70.9 2.8 Banks and other financial institutions 12.4 2.5 14.4 2.8 10.4 1.9 Governments and official institutions 51.8 5.8 9.6 2.0 17.2 4.9 Lease financing .8 .3 .3 .1 1.1 .3 Allother 8.8 3.6 4.4 1.7 6.6 2.9 223.8 5.3 140.3 3.2 106.2 2.7 101.2 3.0 64.6 1.9
$ 467.9 3.2% $ 325.8 2.7% $ 283.5 2.6% $ 234.9 2.5% $ 155.0 The breakdown by category of International nonaccrual loans and leases for years prior to 1982 is not available.
74
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued llowing is an analysis of interest income re ated to loans and leases on nonaccrual at December 31, 1984:
United States International (in millions) Oyerations Oyerations Total Interest income that would have been recognized e during the period lf the loans had been current at original contractual rates $ 24.4 $ 36.2 $ 60.6 Amount recognized as interest income 7.9 10.8 18.7 Difference $ 16.5 $ 25.4 $ 41.9 Renegotiated Loans:
A renegotiated loan is one for which the adequate level, considering net losses charged to the Corporation has compromised the contractual terms Reserve, current economic conditions, sovereign and to provide a reduction in the rate of interest and, in transfer risks, changes in the size and character of most instances, an extension of payments of principal the credit risks, and other pertinent factors or interest or both because of a deterioration in the warranting current recognition.
financial position of the borrower. Renegotiated The Corporation charges all or a portion of a loan or loans, which are performing in accordance with their lease receivable against the Reserve when a new terms, are not included in outstanding loans for which the related accrued interest receivable was probability of loss has been established, with consideration given to such factors as the customer' ially or fully reserved unless concern exists as to financial condition, underlying collateral and
'
timate collection of principal or interest.
guarantees. The Corporation utilizes a loan rating for which contractual interest rates had been reduced and which are performing in accordance system in its United States and International with their new terms were less than .1% of total Operations to assist management in its evaluation of the loan portfolio. At least annually, individual related consolidated loan categories in 1981 through loans are reviewed and assigned ratings based 1984. In 1980, the total balance was $ 33.7 million
~ or .4%. principally upon potential risk. If indicated by the assigned rating, particular loans are reviewed more Reserve for Possible Credit Losses frequently.
The Corporation's reserve for possible credit losses In addition, the Corporation's independent certified public accountants review the loan and lease (the "Reserve" ) is available for future charge-offs of extensions of credit..The provision for credit losses financing portfolio on an annual basis. The loans of the Corporation's bank subsidiaries are also subject to (the "Provision" ), added to the Reserve by charges to periodic examination by bank regulatory authorities.
income, is based upon management's estimation of the amount necessary to maintain the Reserve at an 75
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued Allocation of Reserve for Possible Credit Losses The Corporation does not allocate its reserve for possible credit losses to specific loan and lease consideration to management's evaluation of risk in the portfolios, current economic conditions, recent
~.
categories because management views the reserve as years'oss experience, and the review of the loan being available for all categories of prospective loss. portfolio of the Bank by the Comptroller of the However, to be responsive to the Securities and Currency. The unallocated reserve in 1984 was Exchange Commission's Guides for Statistical increased to reflect the effect of the $ 100 million Disclosures by Bank Holding Companies, the special provision recorded during the year. See Corporation has allocated its year end reserves for Note 6 of Notes to Financial Statements. Based possible credit losses to the major loan and lease upon the foregoing, the allocations of the Reserve categories. The allocations result from giving were as follows:
Loans and Lease Financing December 31 1984 1983 1982 1981 1980 Percent Percent Percent Percent Percent (dollars in millions) Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total United States Operations:
Commercial, industrial and financial $ 7,010.5 48.1% $ 5,253.2 44.2% $ 4,945.9 46.1% $ 4,339.8 4S.4% $ 3,900.0 44.1%
Real estate 2,285.1 15.7 1,588.5 13.3 1,173.4 11.0 990.4 10.4 753.5 8.5 Loans to individuals 921.4 6.3 620.2 5.2 602.2 5.6 618.5 6.5 570.2 6.4 Lease financing 264.2 1.8 213.0 1.8 214.0 2.0 171.3 1.8 131.7 1.5 10,481.2 71.9 7,674.9 64.5 6,935.5 64.7 6,120.0 64.1 5,355.4 International Operations 4,306.3 29.5 4,439.0 37.3 4 018 0 37 5 58 2 38.3 3,679.9 14,787.5 101.4 12,113.9 101.8 10,953.5 102.2 9,778.2 102.4 9,035.3 102.1 Unearned income (199.0) (1.4) (218.0) (1.8) (239.3) (2.2) (227.2) (2.4) (187.8) (2.1)
$ 14 588.5 100.0% $ 11,895.9 100.0% $ 10,714.2 100.0% $ 9,551.0 100.0% $ 8,847.5 100.0%
Allocation of Reserve for Possible Credit Losses December 31 1984 1983 1982 1981 1980 Percent Percent Percent Percent Percent (dollars in millions) Amount of Total Amount of Total Amount of Total Amount of Tolal Amount of Total United States Operations:
Commercial, industrial and financial $ 54.0 22.3% $ 39.0 28.7% $ 36.0 29.0% $ 36.0 30.7% $ 31.0 30.3%
Real estate 7.0 2.9 8.0 5.9 6.0 4.8 7.0 6.0 5.0 4.9 Loans to individuals 8.0 3.3 6.0 4.4 7.0 5.6 8.0 6.8 8.5 8.3 Lease financing 2.0 .8 2.0 1.5 4.0 3.2 2.0 1.7 2.0 2.0 71.0 29.3 55.0 40.5 53.0 42.6 53.0 45.2 46.5 45.5 International Operations 50.0 20.6 40.0 29.5 34.0 27.4 29.0 24.8 25.1 24.5 121.0 49.9 95.0 70.0 87.0 70.0 82.0 70.0 71.6 70.0 Unallocated 121.4 50.1 40.8 30.0 37.4 30.0 35.1 30.0 30.7 30.0
$ 242.4 100.0% $ 135.8 100.0% $ 124.4 100.0% $ 117.1 100.0% $ 102.3 100.0%
76
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued is of Reserve for Possible Credit Losses 0 The following table presents a five year analysis of the Corporation's reserve for possible credit losses.
(in millions) 1984 1983 1982 1981 1980 United States Operations:
Balance, January 1 $ 78.4 $ 76.5 $ 76.2 $ 67.4 $ 61.3 Reserves of acquired companies 6.5 1.6 .6 .6 Provision 115.3 22.7 26.2 15.8 Credit losses, net of recoveries:
Commercial, industrial and financial:
Losses (55.5) (27.7) (20.4) (23.5) (13.8)
Recoveries 12.9 9.4 15.8 10.9 8.8 (42.6) (18.3) (4.6) (12.6) (5.0)
Real estate construction:
Losses (.3) (2.0)
Recoveries 1.0
.7 (2.0)
Real estate other:
Losses (.3) (3) (3)
Recoveries .2 .1 (3) (2)
Loans to individuals:
Losses (5.2) (5.1) (5.5) (6.9) (6.1)
Recoveries 2.4 2.0 4.7 1.6 1.1 (2.8) (3.1) (8) (5.3) (5.0)
Lease financing:
Losses (.7) (1.3) (3.3) (3) (.2)
Recoveries .2 .2 .1 .1
(.5) (9) (3.1) (2)
Net credit losses (45.3) (22.4) (10.8) (18.0) (10.3)
Balance, December 31 $ 154.9 $ 78.4 $ 76.5 $ 76.2 $ 67.4 International Operations:
~ Balance, January 1 $ 57.4 $ 47.9 31.3
$ 40.9 36.9
$ 34.9 21.8
$ 21.5 32.2 Provision 64.7 Credit losses (43.1) (27.1) (36.7) (17.0) (21.5)
Recoveries 8.5 5.3 6.8 1.2 2.7 Net credit losses (34.6) (21.8) (29.9) (15.8) (18.8)
Balance, December 31 $ 87.5 $ 57.4 $ 47.9 $ 40.9 $ 34.9 Consolidated:
Balance, January 1 $ 135.8 $ 124.4 $ 117.1 $ 102.3 $ 82.8 Reserves of acquired companies 6.5 1.6 .6 .6 Provision 180.0 54.0 48.0 48.0 48.0 Credit losses (105.1) (61.3) (68.2) (47.7) (41.9)
Recoveries 25.2 17.1 27.5 13.9 12.8 Net credit losses (79.9) (44.2) (40.7) (33.8) (29.1)
Balance, December 31 $ 242.4 $ 135.8 $ 124.4 $ 117.1 $ 102.3 Loans and lease financing at December 31 $ 14,589 $ 11,896 $ 10,714 $ 9,551 $ 8,848 Average loans and lease financing $ 13,210 $ 11,076 $ 10,125 $ 9,050 $ 8,046 Ratios:
Reserve for possible credit losses to loans and lease financing at ecember 31 1.66% 1.14% 1.16% 1.23% 1.16%
credit losses to average loans and ase financing .61 .40 .40 .37 .36 et credit losses to provision for credit losses 44.43 81.80 84.93 70.30 60.87 Total recoveries to total credit losses 23.91 27.97 40.33 29.27 30.49
~ 77
BANK OF BOSTON CORPORATION Consolidated Statistical Information, contintted Investment Securities The following table sets forth the book values of investment securities of the Corporation on the dates
~.
indicated.
December 31 (in millions) 1984 1983 1982
~
U.S. Treasury $ 507.0 $ 755.5 $ 874.5 States and political subdivisions 22.8 12.8 171.1 Other bonds, notes and debentures 321.1 338.5 265.1 Marketable equity securities 16.2 14.1 17.6 Other equity securities 99.7 77.3 61.2
$ 966.8 $ 1,198.2 $ 1,389.5
~ The following table illustrates the relative maturities subdivisions are stated on a fully taxable equivalent and weighted average interest rates of investment basis assuming a 46% federal income tax rate, securities held at December 31, 1984, excluding adjusted for applicable state and local income taxes equity securities. Rates for states and political net of the related federal tax benefit.
After Onc After Five Within bul within but within After One Year Five Years Ten Years Ten Years Total (dollars in millions) Amount Rate Amount Rate Amount Rate Amount Rate Amount U.S. Treasury $ 401.5 10.6% $ 97.2 1 1.5% $ 2.5 10.8% $ 5.8 11.6% $ 507.0 1 States and political subdivisions 8.6 12.2 8.2 16.6 5.5 12.3 .5 12.7 22.8 13.8 Other bonds, notes and debentures:
United States Operations 11.5 13.5 20.4 11.7 13.3 9.9 18.1 8.7 63.3 10.8 ~
International Operations 173.6 31.8 71.3 42.9 12.8 14.0 .1 68.0 257.8 34.0
$ 595.2 16.9% $ 197.1 23.1% $ 34.1 11.9% $ 24.5 9.9% $ 850.9 17.9%
Deposits The aggregate amount of deposits by foreign The following table presents the maturities of time depositors in domestic offices averaged $ 235,103,000 certificates of deposit and other time deposits issued in 1984, $ 173,686,000 in 1983 and $ 157,058,000 in by domestic offices in denominations of $ 100,000 or 1982. more, at December 31, 1984.
Time Certificates Olher Time (in millions) of Deposit Deposits Total Maturing within three months $ 1,262.9 $ 77.8 $ 1,340.7 Over three through six months 29.8 31.8 61.6 Over six through 12 months 32.1 16.5 48.6 Over 12 months 230.2 21.0 251.2
$ 1,555.0 $ 147.1 $
1, The majority of foreign office deposits are in denominations of $ 100,000 or more.
78
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued Term Borrowings 0 Daily Maximuut Average Weighted Weighted Amount Amonnt Average Balance Average Outstanding Outstanding Interest Rate at End of Interest During thc During the During lhe (dollars in millions) Period Rate Period Period Period Category of Aggregate Short. Term Borrowings:
For the Year Ended December 31, 1984 Federal funds purchased (1) $ 731.2 8.72% $ 1,500.1 $1,119.0 10.24%
Term federal funds purchased (1) 606.5 9.67 996.0 664.3 11.03 Securities sold under agreements to repurchase (2) 381.4 84.15 735.3 562.0 38.24 Commercial paper (3) 916.5 9.40 916.5 804.5 10.65 Demand notes issued to the U.S. Treasury (4) 140.8 8.50 216.6 115.1 10.12 Allother (5) 496.4 36.32 689.1 494.0 36.51 For the Year Ended December 31, 1983 Federal funds purchased (1) $ 1,492.8 10.29% $ 2,130.2 $ 1,549.4 8.08%
Term federal funds purchased (1) 348.3 10.17 779.1 516.6 9.55 Securities sold under agreements to repurchase (2) 646.1 29.83 1,199.8 643.2 29.40 Commercial paper (3) 724.9 9.76 724.9 593.8 9.25 Demand notes issued to the
~ . Treasury (4) 106.5 9.94 222.6 135.8 9.00 her (5) 522.8 35.74 594.1 441.0 42.38 For the Year Ended December 31, 1982 Federal funds purchased (1) $ 1,227.0 10.44% $ 1,412.1 $ 1,149.3 11.73%
Term federal funds purchased (1) 646.1 9.60 646.1 467.1 13.06 Securities sold under agreements
~ to repurchase (2) 767.7 22.68 986.5 772.3 19.08 Commercial paper (3) 577.3 8.92 665.6 639.1 12.68 Demand notes issued to the U.S. Treasury (4) 201.4 10.87 209.9 120.3 12.66 All other (5) 430.6 42.56 430.6 351.7 38.23 (1) Federal funds purchased are overnight (3) Commercial paper represents unsecured transactions while term federal funds purchased obligations with maximum maturities of nine have maturities in excess of one day. A large months.
portion of federal funds purchased arise because (4) Demand notes issued to the U.S. Treasury of the Bank's money market activity in federal represent depository liabilities that are not funds for its regional correspondent banks. subject to reserve requirements and bear interest (2) . Securities sold under agreements to repurchase at ~/i of one percent below the weekly average by domestic offices are collateralized by United federal funds interest rate.
States Government securities and mature within (5) All other short-term borrowings represent one year. Securities sold under agreements to secured and unsecured obligations, primarily of repurchase by overseas offices related primarily the Corporation's overseas branches and to the Brazilian operations of the Bank for subsidiaries, to financial institutions at various which various Brazilian Government securities, rates and terms.
serve as collateral.
4 79
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued Summary of Selected Financial Data Adjusted for the Effects of Changing Prices Inflation has had a pervasive influence on the appropriate in the case of the banking industry. A
~.
worldwide economic system. This has resulted in an bank's asset and liability structure differs effort being made to measure inflation's impact on significantly from that of manufacturing and other the performance of business enterprises. Although a concerns in that virtually all assets and liabilities are consensus has not been reached as to the best means of a monetary nature. Accordingly, other factors to achieve this goal, the Financial Accounting such as its ability to manage interest rate risk may Standards Board (the "Board" ) has issued Statement have a much more important impact on a bank's of Financial Accounting Standards No. 33 (the performance. Also, interest rates do not necessarily "Statement" ), entitled "Financial Reporting and move in the same direction or magnitude as the Changing Prices." This Statement, as amended, prices of goods and services as reflected by the requires that certain large entities measure and CPI-U. It is not surprising, therefore, that there is report the effects of changing prices by presenting little agreement as to the overall usefulness of this certain historical cost information adjusted for the type of information.
effects of general inflation. The Corporation uses the The impact of inflation on banks is primarily in the historical cost/constant dollar method of accounting, which adjusts assets and liabilities based on changes lending area. Since customers'oods and services cost more in inflationary times, the level of their in the consumer price index for all urban consumers financing needs may increase to keep pace. If loan (the "CPI-U"), to measure the effects of inflation.
demand increases, the rates charged for the funds This method is used since less than 2% of the Corporation's assets are comprised of premises and may also rise as the financial institutions compete for funds to support the demand. Furthermore, because equipment and the majority of its assets and the borrowers'xposure to financial risk is greatly liabilities are monetary. Therefore, the results of enhanced as a result of increased leverage at high using the more specific current cost method of rates, banks are faced with increased credit risk.
measurement would not be materially different than Therefore, additional emphasis must be placed o the constant dollar method.
evaluating the adequacy of the reserve for possible As with any analytical tool, financial statements credit losses.
adjusted for the effects of changing prices present The following table compares selected financial data only a partial picture and, consequently, should not on a historical basis with the same amounts adjusted be viewed without reference to other financial and to average 1984 dollars using the CPI-U.
~
economic indicators. This caveat is especially 1984 1983 1982 1981 1980 Net interest revenue after provision for credit losses (in millions):
Historical dollars $ 489.9 $ 552.5 $ 506.1 $ 478.9 $ 417.9 Average 1984 dollars 489.9 580.0 544.6 547.0 526.7 Per share data:
Net income Historical dollars $ 8.35 $ 7.40 $ 6.67 $ 6.25 $ 5.48 Average 1984 dollars 8,35 7.71 7.17 7.14 6.91 Dividends declared Historical dollars $ 2.34 $ 2.17 $ 1.97 $ 1.73 $ 1.52 Average 1984 dollars 2.34 2.26 2.12 1.98 1.92 Market price at year end Historical dollars Average 1984 dollars Average Consumer Price Index (base year 1967 = 100)
$ 39.75 39.20 311.I
$ 40.50 41.51 298.4
$ 33.75 35.91 289.1
$ 30.42 33.62 272.4
'0 80
BANK OF BOSTON CORPORATION Consolidated Statistical Information, cotttittrted urchasing power loss on net monetary assets is adjustments required by the Statement, show the
~ a nstant dollar concept, designed to measure how larger purchasing power loss. Basically, a bank does general inflation affects monetary assets and not hold a significant amount of non-monetary assets liabilities, and is a function of the level of inflation. and such assets are not material relative to the In periods of inflation, monetary assets such as cash revenue producing process. Instead, it funds and fixed claims to cash lose in terms of general monetary asset growth by simultaneously incurring purchasing power because the cash will buy less at equal monetary liabilities; interest rates being
' the end of the period than at the beginning. adjusted to maintain interest margins sufficient to Conversely, monetary liabilities, such as deposits and compensate for risk, to mitigate inflationary pressures other funds borrowed, will gain under the same and to increase capital consistent with the expansion circumstances. This has significant reporting of the bank. Management believes, therefore, that implications for a bank, whose assets and liabilities the purchasing power loss amount is not relevant in are almost all monetary in nature. In inflationary that it is not indicative of how well a financial 4 periods, a bank will generally report a purchasing institution manages its asset/liability structure.
power loss, the magnitude of which is inversely In the following table, amounts adjusted for general related to the degree to which it is leveraged. The inflation and purchasing power losses are stated in lower the proportion of liabilities to equity, the average 1984 dollars.
greater the loss to be reported; the more highly capitalized financial institutions will, because of 1984 1983 1982 1981 1980 Per Per Per Per Per fin millions, except share amounts) Amount Share A>notmt Share Amount Share A>nount Share Amount Share Net income (1) $ 164.1 $ 8.35 $ 141.5 $ 7.71 $ 133.9 $ 7.17 $ 135.5 $ 7.14 $ 128.8 $ 6.91 A ditional depreciation resulting adjusting premises and
'pment for the effects of eral inflation (2) (11 2) ( 58) (9 0) ( 49) (9.0) (.48) (7.5) (.40) (7.2) (.39)
Net income as adjusted for general inflation $ 152.9 $ 7.77 $ 132.5 $ 7.22 $ 124.9 $ 6.69 $ 128.0 $ 6.74 $ 121.6 $ 6.52 Net assets at year end (1) $ 1,168.9 $ 1,032.6 $ 940.6 $ 906.8 $ 878.8 Increase resulting from adjusting premises and equipment for the effects of general inflation (2) 88.3 165.0 159.1 144.8 126.1 Net assets at year end as adjusted lor general inflation $ 1,257.2 $ 1,197.6 $ 1,099.7 $ 1,051.6 $ 1,004.9 Purchasing power loss on net monetary assets held during the year (2) $ 16.4 $ 11.2 $ 14.1 $ 29.1 $ 41.3 (1) Represents amounts reported in the historical (2) In accordance with the Statement, additional cost financial statements stated in average 1984 depreciation and other adjustments have been 0 dollars. computed without regard to any related tax benefits.
81
BANK OF BOSTON CORPORATION Consolidated Statistical Information, continued Trust Data The assets shown below represent holdings in accounts for which the Corporation's subsidiaries
~.
have investment responsibility at December 31, 1984.
Pcrcenlage (dollars in millions) Market Value of Total Assets by type of investment:
Common stocks $ 3,790.7 55.1%
Corporate bonds and notes 1,216.5 17.7 U.S. Government and agency obligations 932.9 13.5 State, county and municipal obligations 388.9 5.6 Miscellaneous assets 278.9 4.1 Real estate and real estate mortgages 151.1 Cash 67.6 1.0 Preferred stocks 56.5 .8 Total assets under investment supervision $ 6,883.1 100.0%
Number of Percentage (dollars in millions) hccounts Market Value of Total Assets by type of account:
Employee benefit trusts 1,974 $3,434.6 49.9%
Personal trusts 6,957 2,607.1 37.9 Agencies 1,368 802.1 11 Estates, conservatorships and guardianships 441 39.3
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10,740 $ 6,883.1 100.0%
82
BANK OF BOSTON CORPORATION Summary of Quarterly Consolidated Financial Information and Common Stock Data opinion of management, all adjustments, been made. Notes 6 and 8 of Notes to Financial w ich include only normal recurring adjustments, Statements on pages 54 and 55 include additional necessary to present fairly the results of operations information with respect to certain transactions for each of the following quarterly periods have recorded in the fourth quarter 1984.
19tt4 1983 Fourth Third Second First Fourth Third Second First
~ (in millions, exceyt share amounts) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Income statement data:
Interest income $ 812.6 $ 785.4 $ 724.4 $ 600.0 $ 612.0 $ 596.7 $ 563.0 $ 561.5 Interest expense 625.6 613.9 553.0 460.0 458.8 438.3 413.6 416.1 Net interest revenue 187.0 171.5 171.4 140.0 153.2 158.4 149.4 145.4 Provision for credit losses 134.5 16.0 16.0 13.5 13.5 13.5 13.5 13.5 Net interest revenue after provision for credit losses 52.5 155.5 155.4 126.5 139.7 144.9 135.9 131.9 Other operating income 252.7 79.3 74.4 73.4 75.0 65.0 56.3 69.7 Other operating expense 204.0 178.2 179.4 160.6 156.3 154.9 142.6 141.4 Income before income taxes 101.2 56.6 50.4 39.3 58.4 55.0 49.6 60.2
~ Provision for income taxes 26.6 22.9 19.5 14.4 23.8 22.2 18.4 23.1 Net income $ 74.6 $ 33.7 $ 30.9 $ 24.9 $ 34.6 $ 32.8 $ 31.2 $ 37.1 Average balance sheet data:
Cash and due from banks $ 1,512 $ 1,439 $ 1,395 $ 1,384 $ 1,311 $ 1,160 $ 1,173 $ 1,063 nterest bearing deposits
~
I'ther banks eral funds sold and esale agreements 2,311 323 2,469 282 2,527 344 2375 195 2,709 150 3,110 301 2,953 147 2,993 156 Trading account securities 474 330 401 448 434 325 474 476 Investment securities 964 963 1,009 1,139 1,132 842 1,397 1,303 Loans and lease financing 14,118 13,728 13,078 11,889 11,500 11,116 10,905 10,772 Other assets 2,093 2,014 2,102 1,940 2,102 1,831 1,751 1,692 Total assets $ 21,795 $ 21,225 $ 20,856 $ 19370 $ 19,338 $ 18,685 $ 18,800 $ 18,455 Deposits $ 14,681 $ 14318 $ 13,710 $ 12,477 $ 12,252 $ 12,272 $ 11,749 $ 11,720 Federal funds purchased and repurchase agreements 2@74 2,221 2@57 2,432 2,631 2,341 3,017 2,854 Notes and other funds borrowed 1,971 1,997 1,991 1,873 1,666 1,608 1,524 1,490 Other liabilities 1,617 1+80 1,712 1,573 1,806 1,515 ',583 1,491
~ Stockholders'quity 1,152 '1,109 1,086 1,015 983 949 927 900 Total liabilities and stockholders'quity $ 21,795 $ 21,225 $ 20,856 $ 19@70 $ 19,338 $ 18,685 $ 18,800 $ 18,455 Per common share:
Net income $ 3.80 $ 1.68 $ 1.55 $ 1.31 $ 1.86 $ 1.79 $ 1.71 $ 2.04 Dividends declared .60 .58 .58 .58 .58 .53 .53 .53 Market value:
High 41ys 39 37/s 435 42 44 47/s 41%
Low 34'/s 29 30 35'/z 34'/s 37'/i 39/s 32S Average common shares outstanding (in thousands) 19 267 19I172 19 061 18 967 18 614 "
18 322 18 262 18 197 The common stock of the Corporation (BkBos), ticker symbol is "BKB". The registrar is State Street
'ch is the only class of its securities entitled to Bank and Trust Company and the transfer agent is t the Annual Meeting, is listed and traded on The First National Bank of Boston.
ew York and Boston Stock Exchanges. The.
83
Board of Directors iI +
Martin A. Allen William F. Andrews William L. Brown William J. Clark Chairman Cluurman, Presidenl and Chairman and President and Computervision Corporation Chief Executive Officer Chief Executive Officer Chief Executive Officer Scovill inc. Massachusetts Mutual Li% Bisurance Company Gerhard M. Freche Thomas J. Galligan, Jr. Nelson S. Gifford Richard D. Hill President and Chairman, President and President Former Chairman Chief Executive Officer New England Telephone and Telegraph Company Chief Executive Officer Boston Edison Company Dennison Mairufact uring Company o
I i<. .
..': '-
Colman M. Mockler, Jr. J. Donald Monan, S.J. Charles A. Sanders, M.D. Richard A. Smith Chairman and President Executive Vice President Chairman and Chief Executive Officer Boston College Squibb Corporation Chief Executive Officer The Gillette Company General Cinema Corporation Honorary Directors Frank L. Farwell James R. Martin Austin B. Mason William C. Mercer 84
Gary L. Countryman John F. Cunningham Alice F. Emerson Raymond C. Foster President President and President Chairman and President Liberty Mutual Insurance Company Chief Operating Officer Wheaton College Stone & Webster, Lncorporated Wang Laboratories, Inc.
D. Brainerd Holmes Samuel Huntington John G. McEtwee Donald F. McHenry President President and Chairman and Research Professor of Diplomacy teon Company Chief Executive Officer Chief Executive Officer Georgetown University 0 lVero England Eleclric System John Hancock Mutual Life Insurance Company lra Stepanian George R. West
~ President and Chairman and Chief Operating Officer Chief Executive Officer Atlendale Mutual Insurance Company srsy BANK OF BOSTON CORPORATION AND THE FIRST NATIONALBANK OF BOSTON An Wang 85
BANK OF BOSTON Middle Market International Group Edge Act Subsidiaries
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Paul N. Vonckx Bank of Boston CORPORATION Clark W. Miller Commercial Finance International-William L. Brown Robert E. Flaherty Group Executive Los Angeles Chairman of the Board East John A. Devine Mark J. Udem Gabe E. Romeo Bank of Boston Ira Stepanian Deputy West International-President Ronald L. Administration New York Alan L. McKinnon Watterworth John R. Kennedy Mario S. Rossi Executive Vice President, Northeast Bank of Boston W. Latimer Gray Asia/Pacific International South-Comptroller & Treasurer Midwest David W. Kruger Houston Joseph L. Duran Edward P. Collins Roberto L. Garcia Assistant Treasurer Europe/Middle East/Africa Southeast Robert Woods Bank of Boston Richard A. Wiley James A. Mahoney International South-Southwest Africa Miami Executive Vice President Robert M.
T. McLean Griffin Thomas M. Mercer Far West Schroder Kenneth B. Ingram
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Clerk & General Counsel Mark A. MacLennan Middle East Overseas Locations Christopher Y. Argentina-Gary A. Spiess Specialized Lendi>rg Crockett M.R. Sacerdote Deputy General Counsel & Constantin R. Boden Australia - A.A. Lockhart Assistant Clerk Latin America Communications Frank N. Aldrich Bahamas - R.R Ploss Eric R. Fischer C. Douglas Mercer Bahrain - W.A. Flemer Caribbean Bolivia - M.L. Ruiz Assistant General Counsel & Energy Alfredo V. Restrepo Assistant Clerk David K. McKown Brazil - H. de C. Meirelles High Technology Central South America Cameroon - K. Tenny L. Thomas Bryan Hcnrique de C. Canada - R.S. Perry Insurance Meirelles Chile-THE FIRST NATIONAL Panama and Central Christopher VanCuran L.G. de Campos Salles BANK OF BOSTON Transportation America Costa Rica - R. Balma Laurence A. Pierce Benton L. Moycr, III France - P.G. Bates William L. Brown Southern South Cirairrnan of the Board Utilities Germany-Jonathan D. Horne America U. Colsman Freyb Ira Stepanian Manuel R. Saccrdotc Guatemala - M. Astur President Operating Services and Systems Haiti - W.C. Chase Phillip M. Sullivan Lending Kevin J. Mulvaney Honduras - A. Calix Cash Management Hong Kong - M. Ohayon Stephen J. MacQuarrie Worldwide Financial Services Italy - M. Nishibori Freight Payment George B. Yurchyshyn Japan - P.J. Robb Corporate Group Anthony J. Rubico International Korea - B.W. Lamont Charles K. Gifford Line Management Processes and Correspondent Luxembourg-Banking P.W. Gcrrard Group Executive Staff Support Mexico - J.F. Martin T. Lincoln Morison, Jr. Gerard M. Marlio Large Corporate International Private Netherlands Antilles-Paul N. Vonckx Leasing Banking R.D. Freeland Eastern Peter J. Manning Patrick R. Wilmerding Nigeria - R.D. Ward Peter L. Griswold International Trade Panama - B.L. Moyer, III Paraguay - RS. Alcazar Ncw York City Mario Rossi Services William R. Driver, III Philippines - B.C. Sevilla ~
Midwest U.S. Trade Services Puerto Rico - M.J. Blake John C. Mechem Bruce J. Haddow Singapore - P.D. O'rien Far West World Trade Group, Inc. Switzerland-Geoffrey W. Smith R. Ronald Guerriero M.C. Hubble Foreign Multinationals Jeffrey L. Eberle 86
faiwan - P.T. Fei Worcester Region Treasury/Investment lnfonnalion Systems Turkey - I. Levack Francis D. McGrath Bankin Group and Services United Kingdom- Eagle Investment William R. Synott G.A.E. Fritze Associates Peter C. Read Law Office Uruguay - C. Medina Roger D. Scoville Group Executive T. McLean Griffin Venezuela - B.F. Johnson Personal Trust/Wealth Loan Review David H. Denby lnveslmenl Banking Slater Smith Merclmnt Banks Thomas A. Fransioli Management information First National Boston Retail Banking Producls and Corporate Finance Systems Development Limited Staff Support Jamie B. Stewart John A. Ross Richard J. Fates D. Bruce Wheeler Placements Risk Management First National Boston Retail Banking Products Patrick F. Connelly Joseph F. Magennis Asia Limited Linda Kanner Product Development and Slralegic Planning Management Wendy P. Abt Operating Products and Services Eric Hayden Eugene M. Tangney Public Finance Correspondent Banking Bradford H. Warner New En land Group William I. MacDonald Equity Investments Deposit Operations Charles R. Klutz Lawrence K. Fish Donald B. Snow Venture Capital Group Executive Mutual Funds and Paul F. Hogan Casco Norlhern Custody Services Thomas S. Marchiel Treasury John M. Daigle Richard L. Timpson Shareholder Services and Commercial Financial Corporate Trust Domestic Funding Group and Human Charles J. Ducie Dennis J. Kelleher Resources Government Securities Bruce U. Munger Systems Development and Data Peter F. Groff Internal Services and Processing International Treasury Chief Financial Officer John C. Martin Steven M. Bavaria Denison Gallaudet Tax Exempt Securities Northern Division James B. Hearty A.William Carman Personal Financial Group Frank H. Parker Real Estate Grou Credit Policy and Loan Review Edwin B. Morris, III Corporate Center Staff Ralph B. Fifield Group Executive Audit Dewey Square lnveslors Real Estate Lending/lnvestmenls Peter Fischoeder William B. Moody Garlan Morse, Jr. Community investment
~ Massachusel is Banking Construction Lending Raymond H. Weaving Robert L. Stearns Development Benjamin J. Bowden Real Estate Investments Kenneth R. Rossano Cape Cod Region John F. Ahearn Corporate Communications Barrett C. Nichols Barry M. Allen Greater Boston Region Morlgage Banking Economics Robert M. Mahoney Thomas M. French, Jr. James M. Howell Metropolitan North BancBoston Mortgage Corp. Public Affairs Region Edward M. Barrett John W. Delaney Myles Borland Mortgage Corporation of Finance Metropolitan South the South Alan L. McKinnon Region Joe K. Picket t General Services Francis J. McCormack Stockton, Whatley, Howard A. Bouve Southeastern Region Davin & Co. Human Resources Ronald S. LaStaiti William F. Boling John F. Stucke Western Massachuset ts Region 0 Karl Walczak Facilities Theodore M. Edson I
87
Executive Office 100 Federal Street, Boston, Investor Information Requests for information should be directed O.
Massachusetts 02110 (617'34-2200 to the Corporate Communications Transfer Agent Department, P.O. Box The First National Bank of 1987, Boston, MA 02105.
Boston Registrar An Automatic Dividend Reinvestment and State Street Bank and Common Stock Purchase Trust Company Plan is available for Common Stock Exchange stockholders who wish to Listings (BkBos) increase their equity in New York Stock Exchange the Corporation.
Boston Stock Exchange Business of the Corporation Bank of Boston Annual Meeting Notice Corporation is an The Annual Meeting international multibank of the stockholders will holding company, whose be held at the Federal Reserve Bank of Boston, principal subsidiary is The First National Bank of 600 Atlantic Avenue, on Boston. The Corporation Thursday, March 28, 1985 at 10:30 a.m.
10-K Report A copy of the Corporation's annual and its subsidiaries provide a broad range of financial services to individual, corporate,
~
institutional and report on Form 10-K for government customers, as 1984, to be filed with the well as to other banks.
Securities and Exchange Commission, may be obtained without charge upon written request to the Business Extension Department, P.O. Box 2016, Boston, MA 02106.
o'esign:
ttrtl and Knowlton Corporate Design New Photography: C. Richard Norton Kip Brundage (portraits)
Cymie payne (page 19)
Prlntlngr W.f. Andrews Co., Inc.
88 I
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UNITED STATES OP AMERICA NUCLEAR REGULATORY COMMISSION In the matter of ARIZONA PUBLIC SERVICE COMPANY, et al, DOCKET NO. STN 50-528 (Palo Verde Nuclear Generating Station, Unit 1)
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EXHIBIT C APPLICATION IN RESPECT OF A SALES AND LEASEBACK FINANCING TRANSACTION BY PUBLIC SERVICE COMPANY OF NEW MEXICO FINAL REPORT OF THE S M STOLLER CORPORATION DATED AUGUST 3g 1982~
ENTITLED eESTIMATED COST FOR DECOMISSIONING PALO VERDE NUCLEAR GENERATING STATION (PVNGS)"
0'e ESTIMATED . COST FOR DECOMMISSIONING PALO VERDE NUCLEAR GENERATING STATION PVNGS F.inal Report August 3, 1982 R. iL Kupp A. A. Meinstein Because of the nature of the work provided herein, SMSC cannot guarantee the results will completely meet the objectives sought. SMSC has, however, exercised its best efforts toward that end, and have applied to the work professional personnel having the required skills, experience and competence. if It is understood that SMSC liability, any, for any damages direct or consequential resulting from this work wi 11 be limited to the amount paid SMSC hereunder.
o 1
ESTIMATED COST FOR DECQWISSIONING PALO VERDE NUCLEAR GENERATING STATION PVNGS INTRODUCTION AND BACKGROUND The S. M. Sto lier Cor poration prepared two previous decomissioning studies for ANPP one in 1975 and an update in 1979( . Both of these previous studies were based on the actual PVNGS Units with specific material take-offs appropriate to the designs developed for those units.
The purpose of this study is to revise those estimates to 1982 dollars and at the same time generally review the approaches taken in those previous studies and modify them as necessary in light of current data or changes in decomissioning views. Utilizing a more explicit budget, decottmissioning project payment schedules are defined that are appropriate for the several decomissioning alternatives to assist in evaluating and defining the associated financing policies.
Estimated Costs for Decommissionin One of the. Palo Verde Nuclear Generatin Plant, Prepared by the S.M. Stol ler Corporation for the rizona Nuc ear Power Project, 1975.
(2) U date of Estimated Costs for Oecommissionin One of the Palo erde Nuc ear Generation tat1on VNG Units, Prepare y the
.M. to er Corporation for the rizona Nuc ear Power Project, October 3, 1975.
(3) Regulatory Guide 1.86, Termination of 0 eratin Licenses for (4) ~f Nuclear Reactors, U.S. NRC, une aci "R
ities NUR i
G-0436, f"Revision CPll 0 i i i
, U;S. Nuc ear Regu f
atory ommission, December 1978 and Supplement 1, August 1980.
s 0
Decoaaissioning Alternatives The three appr oaches to the decommi ssi oning of '
nuclear faci1 ity identified by the NRC have been evaluated in the previous SMSC analyses of the PVNGS Units. These approaches are:
A. Complete removal This decommissioning approach is sometimes broken down into two steps, an immediate "dismantlement", the removal of all radioactively contaminated materials from the plant, including radioactively contaminated concrete, steel, etc. such that the facility could then be considered to be a "conventional" non-radioactive plant; and "demolition", the removal of all equipment h
and buildings to below grade followed by the restoration of the site to its "original" condition. The previous decommissioning studies by SMSC (1975 and 1979) incorporated both of these steps in the dismantling decomnissioning alternative. The scenario is sometimes called "DECON".
S. Mothballing Decontamination followed by "securing" a plant in place for some "long" period of time e.g. 30 years. Eventual dismantlement is necessary if unrestricted release and license termination is desired. This scenario is sometimes called "SAFSTOR".
pe Oi
C. Iso 1 at i on Decontamination followed by sealing the remaining radioactivity in a "monolithic" structure ("entombed" for additional safety) for very long term storage. Even'ith such Iong term storage dismantlement is probably required. This scenario is sometimes called "ENTOMB".
Costing Background In the 1975 cost analysis it was assumed in alternatives "B" and "C",
Mothballing and Isolation (entombment), that there would be yearly ongoing operating and survei 1 1 ance costs af ter the initial decomi ssi oning activities. An entombment structure cannot be designed for a "lifetime" consistent with the long lived isotopes contained therein; therefore, it is not expected that a permanent entombment, the equivalent of an above ground burial facility, would be acceptable as a permanent alternative.
Interim isolation of the plant, under scenarios "8" or "C" with plans for complete removal at some future date, is a probable scenario and a reasonable approach for cost estimating. In such a procedure it is clear, even though the complete removal steps are somewhat less expensive in the future because of the reduced radioactivity levels resulting in more efficient use of manpower and lower disposal charges, that the total cost, in constant 1982 dollars, which includes initial decontamination, interim surveillance and eventual removal, will be higher.
'Among the "A", "8" and "C" alternatives there are major displacements in time for the expenditure of the funds; hence, the evaluated cost can vary substantially, depending upon how "Present Worth" techniques are utilized.
This analysis uti izes constant 1 <1982 do 1 lars for al 1 expenditures and assumes a present worth factor of 3X a year, a value compatible with the constant dollar assumption of the study.
Federal Requireaents There are a number of Federal regulations which establish the basis for decommissioning of a nuclear facility. Those requirements and guidelines, which have been the basis for the development of'his decommissioning analysis, are defined in the following documents:
Title 10, Code of Federal Regulations (10CFR), the Rules and Regu-lations of the Nuclear Regulatory Commission (NRC).
Part 50, Sections 50.33, 50.51, 50.59, 50.82, 50.90..
Part 51, Sec. 51.5 Parts 20, 30, 40, 70 NRC Regulatory Guide 1.86 NRC Regulatory Guide 4.2, Rev. 2, Sec. 5.8 NUREG - 0436 Revision 1 (Plan for Reevaluation of NRC Policy on Oecommissioning of Nuclear Facilities)
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In 1981 the Nuc 1 ear Regu 1 atory Commi ss i on proposed additional guidelines (5) regarding the funding requirements for decommissioning at the end of plant lifetime, and in addition proposed new funding requirements for early decommissioning which would not normally be anti-cipated. The cost for such early decommissioning would be similar, but slightly lower than that developed for "end of life", because the total induced radioactivity would be somewhat less as a result of shorter radiation exposure. It has been proposed by NRC that utilities maintain property damage insurance available to the nuclear industry which could be applicable to such early and unanticipated Decommissioning
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(5) "Decommissioning Criteri a for Nuclear Facilities; Notice of Availability of Draft Generic Environmental Impact Statement",
Federal Re ister, 46:11666, February 10, 1981.
" nterim Fina Rule Requiring Utility Licensees to Purchase On-(6) i i i i i id ". ~Fd i R i t, Site Property Insurance to be Used for Decontamination Expenses i1982. 47:1375ii, N i 31,
po
SUMMARY
AND CONCLUSIONS Basis of Study This decorrrnissioning study updates the costs developed in previous studies in several ways as summarized below:
- 1. A review has been completed of the major components of the plant to assure that the weights and volumes are appropriate for the PVNGS as designed and built;
- 2. Labor cost and construction equipment charges have been updated to January 1, 1982 dollars;
- 3. Radioactive waste shipment and disposal charges have been updated to conform to current charges for such service;
- 4. A credit has been taken for those items and materials which have a positive salvage value;
- 5. A task and work schedule was pr'epared and analyzed so as to form a basis for the cash flow required for the manpower, contract services, equipment and fees;
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- 6. Expensed nuclear fuel has been eliminated from the cost of disposal as these charges are recovered from utility customers as a part of fuel cycle cost.
A major reference used in developing the manpower and cost analysis is the detailed report prepared for the Nuclear Regulatory Commission on the decommissioning of a pressurized water reactor station . In addition, several other historic and current decomissioning reports were utilized to develop the plan and cost summarized in this document. These costing data as developed and presented in these h
references, and specifically the prior PVNGS S. M. Stoller Studies have been reviewed and compared to the updated costs presented herein as a check for consistency.
(7) R.l.lith,d.l.Khdil.l.KKK,R Safet and Costs of Decommissionin a
~ .,K~h Reference Pressurized Water Reactor Power Station, NUREG/CR-130, Prepared by Pacific Northwest Laboratory for U.S. Nuclear Regulatory Comnission, June 1978, Addendum, August 1979.
(8) H. D. Oak et al., Technolo Safet and Costs of Decommissionin a Reference Boi 1 in Water Reactor Power Station, NUREG/CR-0672, Prepared by Pacific Northwest Laboratory for U.S. Nuclear Regulatory Commission, June 1980.
(9) W. J. Manion, T.S. La Guardia and P. Garrett, An En ineerin Ev'aluation of Nuclear Power 'Reactor Decommissionin A ternatives, N - - R, a Natsona Environmenta tudses Project of the Atomic Industrial forum, Inc., November 1976.
(10) B. J. Davis, "Elk River Reactor Dismantling", Proceedin s of the First Conference on Decontamination and Oecommissionin 0 8 0 of RDA and, d
Prepared by Northeast I"'"'
aci itches, CONF- 5-82 p. 83, August 975.
d I Ihllt" II't Utilities Service Company, Ber K.
in, Connecticut, May, 1981.
(12) Op. Cit. (1), (2).
&7&
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REFERENCE DECOMMISSIONING SCENARIO The ANPP reference for decoomissioning OF PVNGS is that of- scenario "A"-
"Complete Removal" (immediate dismantlement) after plant shutdown which includes the decontamination and removal of all radioactive components and materials followed by the demolition of all structures to below grade and the regrading of the site.
This scenario A reference was decided upon, rather than scenario "8" -"Safe Storage" followed by dismantlement or "C", long term "Entombment" also followed by dismantlement, as scenario A represents the most straight-forward approach to recovery of the site to its original condition and its early subsequent unlimited use. Immediate dismantlement also is con-servative in that it results in the highest "Present Worth" dollar cost which must be provided at the time of plant shutdown. The other two decommissioning alternatives although they result in higher total dollars, are lower in "Present Worth" charges. Table I sumnarizes the cash flow for the three alternatives in 1982 dollars as a function of years after shut-down and it also summarizes the "Present Worth" cost of these different patterns of expenditure using a 3 percent discount rate.
Another factor in the decision to use the immediate dismantlement, scenario A, as the decommissioning reference is the view expressed in the NRC draft statement on decommissioning of nuclear facilities . In (13) Or aft Generic Environmental Im act Statement, NUREG-0586, U.S.
Nuclear Regulatory Commission, January 1981.
~ '<<<< ~ ~ ll ~ ~ ~l ~l ~ ~l l ~ ll ~l ~ I~ a ~
.e TABLE 1 PALO VERDE NUCLEAR GENERATING STATION DECOMMISSIONING COSTS FOR ONE UNIT TOTAL COST AND CASH FLOM FOR ALTERNATIVE DEC9%ISSIONING SCENARIOS (Millions of 1982 Dollars}
SCENARIO YEAR A B C (0 is the Immedi ate Mothballing Iso 1 at i on Time of Dismantlement Followed by Followed by Shutdown B Remov~)B~ Removal Removal>>)
DECON SAFSTOR ( ENTOMB
<<2 1.1 1.1 1.1
-1 3.0 2.7 2.8 15.1 79.1 10.3 22.6 11.3 26.6 28.0 6.6 9.1 23.8 1. 2.
8.1 0.14 0.0 3.4 1.2 5-27*-$ /Year 0.14 0.0 28 0.5 0.6 29 1.7 1.9 30 12.6 65.8 12.8 67.1 31 22.8 23.1 32 20.3 20.6 33 7.9 8.1 TOTAL 1982 $ 79.1 91. 8 94. 9 PRESENT WORTH $ ~ 74.3 50.2 53.1
- Could be for a shorter or longer isolation period which would result in higher or lower present worth costs.
0 (13)
Based on 3X/year discount rate to zero time (shutdown of reactor).
'Nomenclature used by NRC - NUREG 0586
O.
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that document, although it was stated that 30 year SAFSTOR (Scenario 8) was a reasonable option, longer term, e.g. "100 Year SAFSTOR (or presumably a similar ENTOMB period) is not considered a reasonable option since it results in the continued presence of a site dedicated to radioactivity containment for an
~
extended time period.
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It was also stated (13) NUREG-0585 that the economics op cit. were not as good.
The cost data in Table 1 assumes that each unit on the PVNGS site would be decommissioned separately. If multiple'units were to be decoomissioned at about the same time there would be some savings per unit as a result of sharing comnon costs (e.g. planning, engineering, licensing), from more efficient use of personnel and equipment and also from "learning" from the first unit to the next.
These savings have been estimated and the cash flows and totals for a three-unit deconmissioning, with a time displacement of two years between units, is summarized in Table 2 for the scenario A alternative. This two-year displacement is reasonably optimum which is illustrated by the relatively level total cash flow.
The costs and cash flows in Table 1 have been used as a basis for a funding requirement and a recommended funding plan.
A summary by major components of costs for the reference decoomissioning is given in Table 2. It should be noted that fuel shipment and disposal are not included as these charges are incorporated into the fueI cycle costing and are collected from customers and accrued during the operating period.
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TABLE 2 PVNGS Decomissionin Cost for Nu1ti 1e Units SCENARIO A - Immediate Dismant1ement and Reaeva1 (DECON)
Cash F1ow - (Mi1lions of 1982 Dol1ars)
. 'ear Unit 1 Unit 2 Unit 3 TOTAL (0 is time of Shutdown Unit 1)
-2 3.0 3.0 15.1 0.2 15.3 28.0 0.5 28.5 23.8 14.7 0.2 38.7 8.1 27.1 0.5 35.7 23.5. 14. 7 38.2 8.1 27.1 35.2 23.5 23.5 8.1 8.1 TOTAL 79.1 74.1 74.1 227.3
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PRESENT WORTH 74. 3 65.3 61.5 201.1 (to Zero Time 9 3X per year)
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~ ~ ~ I~ ~ ~ ~l '~t I ~ ~ ~ ~ ~ IM I ~ '~'
The cost savings for the second and third units are also summarized in Table 3. These savings result from a nominal expenditure for additional planning, engineering and licensing requirements and modest savings, on the order of five percent from more efficient use of labor, radioactive waste packaging and improved scheduling as a result of learning on the first unit. There is a reasonable possibility that even more savings may develop. To maintain a conservative approach a twenty five percent con-tingency has been used for all three units.
The cash flow requirement has been developed from. the costing of the "Major
~ Activities" which are shown on a project schedule, Figure 1, and the total expenditures as sumnarized in Table 3. Inherent in this cash flow de-velopment is a a credit for the sale of scrap equipment or materials. In the past most contaminated materials, those with "surface" radioactivity, have not been sufficiently decontaminated to be useful as standard items of commerce, although sufficient decontamination could theoretically be ac-complished and in some cases has actually been achieved. Whether the ad-ditional expenditure of funds for this extra treatment is justified, would have to be determined from a balance between those costs, radioactive transportation and disposal charges, and the market for such commercial scrap material. As this balance has not been well established from historical data to date, we have stayed with the known technology, the more conservative approach, which results in a higher cost and assumed disposal.
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TABLE 3 SCARY OF PALO VERDE DECRSISSIONING COST ESTIMATE SINGLE AND MULTIPLE UNIT DECOSIISSIONING Scenario "A" - Immediate Dismantlement and Demolition (DECON) l Millions of 1982 $
Cost Cate or Unit 1 Unit 2 5 3 Disposal of Radioactive Material 18.8 17.9 Labor 16.7 15.9 Energy 12.6 12.6 Contract Demolition* . 7.4 7.1 Insurance 1.2 1.2 Licensing 1.5 .2 Special Tools and Equipment 1.7 1.0 Miscellaneous Supplies 3.4 3.4 TOTAL 63.3 59.3 Contingency 9 25K 15.8 14. 8 GRAND TOTAL $ 79.1 74.1 Net including credit for salvage value.
0 I ~ '~4 I V ~ ~ ~ ~ ~
~ ~ \ g I ~ ~ ~
. FIGURE DECOMMISSIONING PVNGS SCHEDULE (Single Unit)
YEARS PRE SHUTDOWN CI Pre aration and Anal sis taffin and Trainin Re orts and Licensin POST SHUTDOWN Decontamination Primary Loop Equipment Containment Building
~ . Aux i 1 i ary Bui 1 ding Fuel Building Radioactivitv Removal Primary Loop Equipment Auxiliary Build Equipment
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Fuel Building Equipment Radioactive Shi ments Spent Fuel Decontamination Solids Primar y Loop Building Materials Non Radioactive Demolition and Shi ment Containment Building Materials Auxi 1 i ary Bui lding Materials Turbine E Electrical Equipment Turbine Building Materials Cooling Tower J
Backfillin and. Landsca in 0
o For the non-radioactive portions of the plant the demolition costs are a net charge as the demolition contractor would sell, for his own account, that equipment having a positive salvage value. This was the basis on which the estimate was developed Costing Procedures The principle costing reference is that of NUREG-130, the very complete PWR decommissioning, study developed by the NRC. As this study wa's completed in May 1978 and published shortly thereafter, it is necessary to update the costing to account for economic changes between that date and today. In addition diferences in plant design, site location, a project management approach and energy costs all require additional corrections for the final costs to be appropriate for the PVNGS units.
Those charges previously developed for PVNGS were to a large extent based on the decommisioning of the Elk River reactor - the only major nuclear facility fully dismantled and demolished. A check of this historic data against the updated NUREG-130 provides an independent correlation and con-fidence in the costs developed.
J. N. Hc Farland, Re ort on Re resentative Cost Estimates for Demolition of Structures at a Pressurized Water Reactor Site, N - , repared or Batte e, Pacifsc Northwest La oratory, by McFarland Wrecking Corporation, Seattle WA 98108, September 30, 1976.
i o
Several major corrections were made to the data developed in the NRC report to make the costs applicable to the PVNGS site. These are summarized as follows:
- 1. Labor cost - The labor unit rates have been adjusted to account for escalation between 1978 and 1982.
- 2. Tools, equipment and supplies - Adjusted from 1978 to 1982 with a composite index of steel products, chemical, electrical, and commodities.
- 3. Electrical energy - Use of a current incremental electrical cost for Arizona as compared to the lower "average" cost used in NUREG-130.
- 4. Contr act demolition - Adjusted for increases in construction labor and equipment.
- 5. Waste Disposal - Use of current rates which have increased by more than 400K for disposal charges. In addition, shipping charges are based on a 500 mile shipment (reflecting state/regionalization of disposal sites) and actual current tarriff rates.
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- 6. Licensing - A significant increase in this charge reflecting a view that more preplanning and technical work is necessary for such major demolition both for licensing and project I
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- 7. Size - Related to most of the above items. Corrections were made for the somewhat larger size of the unit and for specific quantities take-off.
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